Quantum entanglement is a central concept of quantum theory for multiple particles. Entanglement played an important role in the development of the foundations of the theory and makes possible modern applications in quantum information technology. As part of the QuVis Quantum Mechanics Visualization Project, we developed an interactive simulation Entanglement: The nature of quantum correlations using two-particle entangled spin states. We investigated student understanding of entanglement at the introductory and advanced undergraduate levels by collecting student activity and post-test responses using two versions of the simulation and carrying out a small number of student interviews. Common incorrect ideas found include statements that all entangled states must be maximally entangled (i.e. show perfect correlations or anticorrelations along all common measurement axes), that the spins of particles in a product state must have definite values (cannot be in a superposition state with respect to spin) and difficulty factorizing product states. Outcomes from this work will inform further development of the QuVis Entanglement simulation.