I remember the "Unusual Traditions" book - dd brought it home last year. If I recall correctly, she was highly amused by the idea of cheese rolling! 
Your dd is ahead of her age for reading, and inevitably, there will be words and concepts that she hasn't yet come across because the books that she is reading are aimed at slightly older children. I don't think this is anything to worry about at all, and as you have suggested, she will naturally develop greater understanding and vocabulary through ordinary conversation and further reading. Obviously, you can probably help by talking to her a lot about a wide range of topics, and also by reading to her a lot.
DD is also five and a half and in year 1. She is a free reader, and has been since the last term of reception. Like your dd, she can decode just about anything she sees, and has been able to do this for quite a long time. However, the teacher apparently moved her onto the free readers in order to give her access to more challenging and complex content, and so I am guessing that her comprehension is pretty good too.
I think this is partly because dd is good at guessing what things mean from the context - I don't know how or why she is good at this, but she'll sometimes ask me what a word means, and if I ask her to say what she thinks it means, she's usually spot on. I wonder if you could make up some sort of guessing game with your dd to tackle unknown vocabulary?
Other things that have probably helped are that dd has always had a fascination for non-fiction books, and we have read loads of these together over the years - our local library has a fabulous selection, and I just let her go and choose whatever appeals to her. My own general knowledge has increased enormously as a result! :)
Fiction is good for developing vocab too, of course, and for giving children access to things outside of their own experiences. Obviously, when you read to them, you can read things which are much more complex than the things that they read for themselves, and I guess this helps them to develop their comprehension skills. And whether fiction or non-fiction, I think it's probably helpful to talk to children a lot about what they have read, what they think of it, what they found most interesting etc.
DD also loves documentaries on TV - anything about science, nature, other cultures etc. Obviously, you have to ensure that things are age-appropriate, but it is surprising how much she actually seems to take in and remember from these programmes, even when I think they're way over her head. Again, we tend to talk about things after we've seen them, and I guess that helps to clarify the bits that she didn't quite get the first time round.