Christ's audience had literal ears, of course, but that is not what He meant. The people heard the sounds, and the sounds formed into words, and words were comprehended to some degree, but they did not really relate to what He was saying. His words just did not hit the right chords so that they could make the right use of them. Jesus says in some exasperation, "Why do you not understand?" Then He goes on to explain why.
He explains, "You are unable to hear what I say." He is implying that the problem is inherent. It was as if He were speaking in one language, and they were hearing in another, so that what He said was totally incomprehensible to them.
John 8 deals with freedom or liberty. These people were in bondage, a kind of slavery, and they did not even know it. They said, "We have never been in bondage." They had a measure of political liberty, but even then, they were under the heel of the Romans. They had a certain amount of freedom, which they apparently considered enough for what they needed for their lives. Ordinarily, the Roman way was, once a nation was crushed, to give the people certain liberties, as long they behaved themselves.
We can see that Jesus was speaking of one thing, yet they understood it in an entirely different way. He was speaking within spiritual parameters concerning the Kingdom of God. They were hearing within political parameters, and thinking about the here and now. It just did not jive.
They became this way just as we do: They lived and operated in a world of lies. This is why Jesus mentions Satan, that he was a murderer and a liar from the very beginning. All the ways of this world - which seem to be so right carnally - are really nothing but behaviors founded upon deceptions, distortions, and falsehoods. To somebody reared in such a deceived environment, the truth of God comes out as so much gibberish. The mind simply does not relate.