Situation assessment (SA) involves deriving relations among entities, e.g., the aggregation of object states (i.e. classification and location). While SA has been recognized in the information fusion and human factors literature, there still exist open questions regarding knowledge representation and reasoning methods to afford SA. For instance, while lots of data is collected over a region of interest, how does this information get presented to an attention constrained user? The information overload can deteriorate cognitive reasoning so a pragmatic solution to knowledge representation is needed for effective and efficient situation understanding. In this paper, we present issues associated with Level 2 (Situation Assessment) including: (1) user perception and perceptual reasoning representation, (2) knowledge discovery process models, (3) procedural versus logical reasoning about relationships, (4) user-fusion interaction through performance metrics, and (5) syntactic and semantic representations. While a definitive conclusion is not the aim of the paper, many critical issues are proposed in order to characterize future successful strategies to knowledge representation and reasoning strategies for situation assessment.