What do you say when a guy says his penis is hard?

He's only saying that because he wants to get a reaction out of you. He may have some specific idea of what he wants to have happen after he says stuff like this, but it's not really clear.

So, just say whatever you want. It's a really random thing to come out with and it doesn't really deserve too much attention as a statement. Perhaps he'll eventually learn the difference between courting a girl and letting everyone know he's aroused!