Esperanto is an artificially created international language, developed in the late 19th century by Dr. Zamenhof. It is the semi-official language of the Space Corps and all officers are expected, but not required, to learn it (Infinity Welcomes Careful Drivers).
Most of the Jupiter Mining Corporation mining ship Red Dwarf was labelled in both English and Esperanto, for example "Levels" were also labelled as "Nivelos". The Xpress Lifts were also labelled as "Kspress Liftoj", the Botanical gardens were also "Botaniko ĝardenoj", and the Observation Dome was also labelled "Observad Kupola".
Arnold Rimmer had been trying to learn the language himself (partially from instructional videos) as part of his ambition to become an officer. In the end, he failed miserably in learning it, while his bunkmate Dave Lister picked up a basic understanding without much, or perhaps any, formal study. (RD: Kryten)
Kryten can understand Esperanto because, as a mechanoid, he is simply programmed with knowledge of many Earth languages (e.g. he also understands German). Holly naturally also understands the language (cf. "Kryten" and Infinity Welcomes Careful Drivers).
The SSS Esperanto Edit
In "Back to Reality" the crew from the Red Dwarf encounter a Space Corps seeding ship called the SSS Esperanto. When they board this vessel they are attacked by the Despair Squid and subjected to its hallucinogenic ink. In their subsequent group hallucination, a Brummie technician named Andy says that to kill the squid they were supposed to use the laser cannons of the SSS Esperanto, citing the name "Esperanto" as a clue. (Esperanto means "one who hopes", and hope defeats despair. Esperanto was named "one who hopes" as it was created as a worldwide common language, in the hope of preventing war).