> Like, even if a native German speaker had never heard that compound word, they'd still understand it because it's just a combination of other words?

Usually yes but occasionally compound words take on a different or additional meaning than one might think based purely off the meaning of the compounds. Furthermore, homonyms are a thing in German and it’s not always immediately clear which meaning a compound carries in an unknown compound words. Also, some (compound) words take on new meanings over time when they’re often used metaphorically.

Examples: Weltschmerz, Ohrwurm, sturmfrei