The squids don't understand a word Sky is saying. They only recognize them because they stole a valuable treasure of theirs.
- ...Which is budder?
- ..I'm gonna go with Jossed here, since the two have conversations where they understand each other just fine.
The squids hate Sky due to their actions, unbeknownst to them.
New World takes place early in this timeline. Soon later, Squid bugged them a bit, and Sky told him to shut up. Then their relationship went in a downwards spiral, and eventually Squid chose to raise an army, making himself the almighty Squid Overlord. He then had his minions kidnap Sky twice (Zombie Tech and Derpy Squids) and Dawn once. Things will only get worse from here.