Meaning of "makes no sense"

Which of the following has the closest meaning to "This makes no sense"?

• "I do not understand this"
• "This has no meaning"

Update I will try to explain: My friend has proposed a solution to some problem. I believe that his solution will not help. Is it possible to answer him with "This makes no sense"? Is that a correct usage of the phrase?

Neither. "This makes no sense" means that the speaker cannot construct a rational argument as to why the particular situation (whatever "this" is) should be true or reasonable, and in particular contends that it is false or unreasonable.

"We'll go tomorrow."

"That makes no sense; the shop is closed tomorrow!"

ETA: this is quite a strong statement, so you had better be able to back it up if you don't want to cause offense!

• "I don't understand this." is stating your opinion that in you in particular cannot get any sense out of 'this' (others might).
• "This has no meaning." is stating your opinion that in general no one can make sense of 'this'.

So the sentence "This makes no sense." is closer to the second one.