when that happens, you actually form the thoughts in the target language. When you begin to achieve fluency, your brain will translate its thoughts into that language, and you will be thinking in Chinese with no effort. IMO that is fluency more than the sum total of your vocabulary. of course, the greater the amount of vocabulary you have, the more detail you will express yourself with and the scope of your conversations is greater. This was my experience with Spanish anyway.
Keep at it, you will have dreams in Mandarin. I am not kidding.
I have seen that episode of the Simpsons...that's a great one. The gendarme does not care about his tales of abuse at the hands of his wine making captors, but once he mentions that they are putting antifreeze in the wine, that gets his attention immediately!
I had trouble with French... there are so many silent letters, and even with the non silent ones, for the most part it is hard to pronounce a word properly having read it but not heard it spoken aloud! Chinese is a little like that to me but not as bad. Japanese was really great in that regard. The word has to be stressed on the right accent but other than that, what you see is what you get lol. like: hana can mean nose, or it can mean flower. one is haNA and one is HAna.

good luck with the Mandarin lessons, i envy you a little with the classes and also proximity to native Mandarin speakers. My kung fu teacher and his wife are from Taiwan and it seems like their accent is different from what i hear on the CDs but not so much.