Do dogs have a language?

I've read that they understand body language but my dog just heard a noise, shot out of the patio door into the garden, barked a few times and then seemed to have a back and forth dialogue with the neighbours dog that went something like this;

Oreo: "I heard a noise, is it something to worry about?"

Scrappy: "I heard it too, was it from the left or the right?"

Oreo: "I don't know, I'm going to bark louder"

Scrappy: "ok I will too"

Oreo: "Good, maybe we can start all the dogs in the street barking......."