Why do they need to “know what’s going on”? And if they do, when do they need to know it? Are there students who never really need to know it? 
By “going on” I mean they comprehend most of what is being said not that they need to be able to break down sentences into grammatical patterns or anything like that.
Last night I was thinking about my time in Chinese class. There was a instance during what would of been the last weeks of first year Chinese – it was the second month of study for me – when the teacher started to tell us a story with language we had already learned. He wasn’t drilling a pattern or anything. I really enjoyed it. (In fact I wish I had a recording of it.) I suppose this might be similar to how your classes are taught.
Oh, now I see what you mean. I thought you might have been saying “need to know what’s going on grammar-wise.” 
Yes, the experience you’re remembering is what happens in comprehensible-input based instruction, pretty much.
I’ve split off the remainder of this thread (including a few earlier posts as well) as the topic was veering off from a discussion of Chinese grammar and tones to general discussion of teaching grammar vs. teaching using input.
The new thread is here: viewtopic.php?f=40&t=106021
I’m not trying to yell at anyone, just keep things a bit tidier.
From my daily experience of learning and using Mandarin in Taiwan I always have the same scenario repeat itself again and again.
I go into someplace and the counter person of course can’t speak/understand any English, so I do my best to order in Chinese as I’ve been taught from friends. I say a few words and the person gets the fear of god put in them, looks like they just saw a ghost. They grab the closest co-worker, and I repeat the exact same thing with the exact same response.
Then they walk into the back and grab a man, or older woman and I repeat the exact same phrase in exactly the same way and the conversation proceeds quite normally with questions/answers and no real problems communicating.
Same tones, same phrases, same everything, except that instantly my Mandarin is miraculously understandable.
Maybe the old guy knows the menu better? 
Seriously – if the old guy does know it better, he’s going to be better at matching up what you’re saying to the possibilities. The young people probably aren’t thinking about limiting the possibilities of what you’re saying. The old people may do that either out of experience or out of a lack of imagination that you’d ever be saying something that wasn’t on the menu. Either way, you eat. 