Your quote from Gerald of Wales reminded me of an entry in a 1397 visitation register (the record archdeacons made when they inspected the parishes in their dioceses) for the parish of Garway in the southwest of Herefordshire on the Welsh borderlands. The parishioners complained that their parish priest was “ill-suited for the pastoral care, as he does not know the Welsh tongue and most parishioners there do not know English.” Note that this is a late 14th-century complaint, almost two centuries after Pope Innocent III’s Fourth Lateran Council, aimed at reforming the church, had spurred a whole series of local pastoral aids for parish priests, including lots of model sermon collections meant to teach the ars praedicandi or “art of preaching”; some of these collections even pre-date the Council and were circulating in Gerald's era. (It’s also worth noting that Gerald had a low opinion of the preaching skills of ordinary priests, which may be why he was impressed by the sermon he heard.) My point is, this is Wales, and I suspect it would be easy enough today to find narrow-minded English speakers who would argue that the Welsh still don’t know how to speak English! Medieval Wales is a special case because of its innate language barriers for English-speakers.

In fact, we have lots of evidence, at least for England, my area, which establishes that preachers gave sermons to ordinary people in Old English or, by the mid-twelfth century, Middle English. (The same use of the vernacular in sermons applies in Europe.) Sermons in the court or cloister, an ostensibly more educated crowd, would be generally in Anglo-Norman or, where feasible, Latin. There is evidence too that, even when sermons are preserved in manuscripts in Latin, some were preached in the vernacular. I also remember reading somewhere about a preacher ignorant of the local dialect who asked an assistant to offer simultaneous translation to the congregation. This would surely be the case, though I can't cite an example, in, say, parts of France where local dialects proliferated, especially in the south. There could even be mash-ups of Latin and Middle English (the so-called macaronic sermon), as in this example by the curate Arthur Vernon (d. 1517), who wrote in one sermon

“Quamdiu clerus and the laife huius terre werknet togedur in uno fagot and brendonn super istum ignem, istud regnum was ful warme and ful wel at hese. Caritas brande so hote the ley of love was so huge quod no Scottich miste ne no Frensche scouris quierunt extinguere istam flammam.

As long as clergy and the laity of this land worked together in one bundle and burned with that fire, that kingdom was wholly warm and well at ease. Charity burned so hotly and the law of love was so great that no Scottish mist nor French showers could extinguish that flame. (Example and translation from Christopher Cannon, who has more to say about the language of sermons here.)

There are other examples of a preacher switching back and forth from Latin to English, giving a sentence in Latin and then translating it, which suggests, at least at some level and for some audiences, of bilingualism. In fact, it was the usual practice to announce the theme of a sermon with a biblical quote in Latin and then switch to vernacular to expound on its meaning. The takeaway here is that the medieval church’s developing program of pastoral care demanded that parish priests preach Christian doctrine to their parishioners, which would have been a futile effort if what they preached was unintelligible to their congregation.

See Andrew Reeves, “The Nourishment of God’s Word: Inter caetera (Canon 10) in England,” in Literary Echoes of the Fourth Lateran Council in England and France, 1215-1405 ed. Maureen B. M. Boulton (2019), 46-73. EDIT: Added a dropped preposition.

Just to add really briefly to /u/Woosier's salient comments here. It was also common practice for significant preachers to bring interpreters with them to translate their sermons into the relevant vernacular. For example, in the De expugnatione Lyxbonensi it explains that the Bishop's sermon, to join the Crusade and retake Lisbon, was delivered:

in Latin, so that it might be made known to everyone in his own language through interpreters.

episcopus sermonem coram omnibus lingua Latina habuit, ut per interpretes cuiusque lingue sermo eius omnibus manifestaretur

Likewise, Gerald himself describes this happening with Baldwin of Canterbury's preaching tour in Wales, in support of the Third Crusade:

Although the Welsh did not understand his language, he continued to sow the words of salvation with his own mouth almost every day, and afterwards also had them carefully explained to those men by faithful interpreters. He thus instilled great devotion in them and persuaded a great multitude to take the cross, the purpose for which he came. I think that it is not beside the point also to cite here the example of Abbot Bernard [of Clairvaux], who preached to German laymen and moved them to tears and weeping, though they did not understand him. An excellent interpreter, a monk, translated his sermon after him, and after he spoke they were not moved. From this it is clear that a man who does not burn cannot kindle. For deeds not words speak in the sacred scriptures, as the poet says: "Do deeds; you will be safe." In this matter deeds rather than words plead and persuade, for voices beat on the outside and do not penetrate, but it is the spirit which acts and works inside. (Gerald, Speculum duorum, ep. 8; as cited in Giles Constable, "The Language of Preaching in the Twelfth Century", Viator 25 (1994), 150.