And just one of the parties needs the translator. The Ancient Hew-mons could understand the Ferengi just fine once the latter fixed their UT's.
I figure one of two things were happening. Either the Ferengi were composing what they wanted to say in their minds, the translator picked this up and fed it back to them in the desired language and the Ferengi consciously speak the words phonetically.
Or, the translator had more control over the process, the Ferengi were thinking what they wanted to say, at which point the translator completely takes over the process and controls the breath, vocal cords, tongue, lips, and jaw of the Ferengi to produce words in the foreign language.