Hmmm... I looked it up in one of my textbooks, and found this:
During an erection, the bulbourethral gland on a dog's penis can swell so much it is too wide to retract into the sheath.
Bulbourethal gland: accessory sex gland in male dogs, this gland becomes swollen when the dog gets excited and appear like two round swellings beneath the skin. They are not testicles, but may look like them.

Hope this helped Alyssa...