So, like does anyone actually understand the ending? What exactly happened?

No idea! A lot of people are saying that they both died, but I don't really get that. I guess it's more of an open ending. You can just interpret it the way you want.
Shen Luo didn't learned how to swim she was able to swim thanks to Wu Julan because he is the King of the sea and helping her to float on the water, so in the moment when he vanishes in bubbles she can't reach the boat and logically she can't breathe in the water because she a human in the end both of them died at the same time
I didn't understand the ending too, anyway I'm very disappointed. 
it was disappointing!!! I didn't watch 32 episode to see them die... -_- 
it was sad but at least was poetic
But didn't Wu Julan say at some point that he has never cried because mermaids don't, unless they experience some incredibly unbearable heartache or something? And when he cries, the tear becomes a pearl? (Or am I confusing this with some other story? *lol*) In that case, none of them died. She kissed him, so he got his pearl back. But it broke his heart that she wanted to give up her life for him, so he cried. Because he cried he produced a new pearl, so now they've got one each. In conclusion, none of them died! 
I believe that both survived, because at a certain point in the drama he mentions that when one would go through a deep sadness his tears produce a pearl, and when she kisses him, she transfers the pearl to him and he produces another through the tear, This pearl and it is sinking, hence at this moment the pearl shines, which to me means that it came back to life. And I believe he lives too, because at the time of the kiss we see an intense glow.

That Ending~ I expected a sad ending but I still got emotional. 

Here are my theories:

Sad Theory:
Lou stopped him and tried to give the pearl via kiss but Wu Julan's strong desire for her to live and him to die stopped the pearl from entering his body which made the pearl become suspended in Lou's hands and she died as well because the pearl is outside her body (because it's too sad if she lives the rest of her life without him). @Sani had a point because she was able to breathe underwater thanks to Wu Julan so when he burst into bubbles she could have died that way as well.

Happier Theory:
Through the wishes and desire of both Wu Julan and Shen Lou, the pearl granted both of them life but Wu Julan would have a human body, meaning the end where the pearl is shining, it is actually activated because it is making a human body for Wu Julan's soul. I mean, it is a Celestial pearl so it has the power to resurrect the dead thus has the power to create life. This, however, is VERY far stretch and even I don't believe it (sadly).

It's typical that the ending is like this though because writers are not suppose to support the idea of interspecies relationships. Some let them be together but seeing as how this is Chinese and they are more conservative, it is more likely that is the reason for it to be a sad ending.

I also don't understand the ending & here, I see some possible theories that makes me feel better.  Thanks for that.(even though I admit it's a little possibilities) 

They have the same lead actors in Season 2...the ML character  has the same name so he didn't die but the FL is the ancestor of the original FL...  not sure if original FL died or not at end of season 1