Okay, so I am going to be an asshole here and correct you: there is a big difference between Medieval art and Renaissance art. Please don't confuse the two, because there were no nudes in Medieval art.
Now, why were the penises so "conservative" in proportion? Well, first of all what I just said is a big part of it. They were just coming out of the Middle Ages, in which there was NO nudity in art. During the Renaissance, the Catholic Church was still the major world power and they not only commissioned the majority of artworks, but they also controlled who was in the Church (and thus who was in society). If you painted/sculpted something that offended the Church, you ran the risk of retaliatory action, which would make it impossible for you to earn a living: no one is going to want to hire you and thus also incur the wrath of the Church.
Even in the Renaissance, depiction of the male nude was often controversial Donatello and Michelangelo both endured a great deal of scrutiny and criticism. In fact, shortly after completing the Sistine Chapel, Michelangelo's work was "edited," and the genitals on all of his nudes were covered in painted drapery by another painter.
So if you are already pushing the envelope by showing a male nude, you are going to try and make sure that male nude cannot be said to be overtly sexual, otherwise you are seriously screwed. SO you make the penis a little smaller, call as little attention to it as possible so you can then say that the work as about the beauty of form and not about sex.
Additionally, the aesthetic of Renaissance was very much based on GReek philosophy and Classical Greek statuary, and it is my understanding that the ancient GReeks found an excessively large phallus to be in poor taste. You can see in their own sculptures (when the penis has not been lopped off by religious zealots) that the penis is always moderate in its proportions (although not nearly as conservative as Renaissance Christians). For the Greeks it was more about being temperate in all things. Some depictions of Dionysus or Pan might have an enlarged penis, because they represent excess in wine and sex.