They understood, they simply wanted it on record and wanted it hashed out. You will see in the ruling they understood. I actually listened to the argument.
The President has a duty to uphold the laws of the United States. He also has a duty to uphold the Constitution. The President has conflicting duties when he belives a LAW is UNCONSTITUTIONAL.
So DOMA was taken to Court to challange its Constitutionality, The Plaintiff v. The United States. The Justice Department origionally defended DOMA. The Plaintiff won at the appellate (middle) level. The U.S. Government then took an appeal but switched sides and is now seeking to uphold the lower court ruling along with the Plaintiff, but because they "won" the Government is appealing a case they already won. In a sense, the Obama Administration is defending the laws of the United States while also defending the Constitution by enforcing DOMA while also trying to defeat it on Constitutional grounds. The President could simply refuse to enforce DOMA, but he would not be Defending the LAWS of the Unites States, he also would not be advancing the issue and pressing the S. Ct. defenativly rule on the Constitutionality of DOMA.
They want the S. Ct. to decide this issue now instead of waiting for it to come up again. Usually you cannot appeal an issue that has already been won, but the S. Ct. will allow it in some circumstances, such as when the issue is likely to come up again.
Because the Government is enforcing the law, while also saying its Constitutional (the duty of the President) there is standing to keep the case going.