They don't recognise the words that they know
If you have a well-graded textbook for your class, this is probably a more common problem than not knowing the vocabulary at all. Apart from just being too busy thinking about other things and missing a word, common reasons why students might not recognise a word include not distinguishing between different sounds in English or conversely trying to listen for differences that do not exist, e.g. not knowing words like "there", "their" and "they're" are homophones. Other reasons are problems with word stress, sentence stress, and sound changes when words are spoken together in natural speech such as weak forms. What all this boils down to is that sometimes pronunciation work is the most important part of listening comprehension skills building.