This has multiple meanings. It can mean any of the following:
1. I understand.
2. I agree.
3. Wow! That's awesome.
4. I would have no problem doing that/dealing with that.
5. Im down with it.
And even much more. Its like jawn. Maaaany meanings!
"Do you want to go to the movies later? Im tryna see Transformers."
"I can dig it!"
"Stay away from him, he's crazy."
"Yeah but I can dig it. Its cool."