Steroids can shrink the testicles because they interfere with the signals that direct the testicles to secrete testosterone. I have not heard from any reputable source that steroids shrink the penis, however. There’s a product called Tonkat Ali, which some say has the ability to increase testosterone naturally. Certain advertisers of that product claim that it is better than exogenous testosterone (or steroids) because, unlike testosterone, it doesn’t “shrink your penis.”
I think this is almost certainly bullshit, however, at least when applied to adult males. I don’t know how steroids effect boys going through puberty. As I understand it, the penis grows during puberty because of a surge in testosterone and a subsequent conversion of testosterone to DHT. The penis is rich in DHT receptors, and it grows at this time when DHT concentrations rise. Although some people claim you can grow a penis using DHT after puberty, most believe that the penis eventually becomes insensitive to DHT, and that’s why penis growth essentially stops.
My sense is that steroids might interfere with penis growth during puberty if 1) they are of a form that is different from testosterone and cannot be readily converted to DHT by the body and 2) their presence in the body tends to shut down natural testosterone production from the testicles, thus leaving the penis with no available source of DHT with which to grow.
Even if this occurs, it is possible that penis growth is merely delayed and not prevented. In other words, normal penis growth may resume once normal hormone levels are restored. But don’t quote me on that.