I agree it seemed like Michael could understand fluent Italian but couldn't speak it as well though that said he was able to speak it better in "The Godfather 2" and 3.
Also, I agree with Jeff's answer but I feel to a degree, he wanted to say what he wanted in English as to get the point across to not only Sollozo but also to Captain McCluskey as well. He wanted them both to know that he wanted his father left alone from that point onwards.
