It's his prepuce. The prepuce is a sheath that protects the dog penis from trauma on a day-to-day basis (it also protects our eyes from the sight of the penis).
Should I trim the hair on my dogs privates?
It is very important to trim away hair that would otherwise get coated with bodily wastes. For male dogs, trim an extra inch or three in front of the penis, as the urine can hit long fringes and contribute to skin rashes and infection. Female dogs should have hair clipped around the vulva.