pufferfish,
Firstly he knows because he has one, and was 12 at some point. Most men remember this initially embarrassing and emotionally trying problem of puberty as funny when they are fully adult. Lots of comedy is done about this issue which all men who went through puberty go through.
All boys in puberty get erections all the time for no specific reason. You may remember this.
The other thing to acknowledge here is that he is speaking dialogue written by someone else. So you've failed to separate him from the character he is portraying.
I know how hard it can be to do this but I'm saying it anyway, try not to take everything to heart often our abuse can distort present interactions w/o us even noticing.

I saw a report on ABC's 20/20 about child prostitution in Los Angeles / Hollywood. That was several years ago. They interviewed several boy prostitutes who said that they had "entertained" Hollywood film stars for money.

We know that there is a kiddie porn and prostitution industry in Hollywood area. A former registrant made claims to having been a part of that industry, and that they also inducted new kids into their "business". The posts in which these claims are made are still online here.

The posts I cited in my post above talk about NAMBLA (North American Man Boy Love Association) in Hollywood and it's prominence there.

The post I cited talks about a conversation of the Coreys where they talk about being sexually abused.

I was personally involved (as a victim) at age 4 in kiddie porn in the Los Angeles area. It really messed me up. I do know who did it. He was using equipment from a studio.

When a public figure such as Jack Nicholson makes a statement in a film concerning a child having an erection it becomes a matter of public record. It is not a joke. The>