I remember hearing that babies are born capable of making and understanding all possible human language sounds, and that their ability gradually narrows as they're exposed to a dominant language (or languages).
Here's an interesting study of a preverbal baby's recognition of language-specific concepts. Researchers at Vanderbilt and Harvard tested the ability of English-home babies to distinguish tight vs. loose fit, a distinction made in Korean, but not in English. (Yeah, if only we had words that mean "tight" and "loose".) Apparently, kids can make a Korean-style distinction their English-speaking parents don't, hinting at a broad set of pre-language concepts bouncing around in the kid's melon.
What Are Babies Thinking Before They Start Talking? [Science Daily, via an interesting language thread on Metafilter]