My guess would be that the "not for internal use" disclaimer is an attempt to evade product liability/personal injury claims. A personal injury claim from a faulty product injuring a person's genitalia could easily stretch into the millions of dollars. As a comment noted, I'm not aware of this being tested in court, and don't have time to fully research, but it doesn't hurt the vendor to try.
Also, calling it novelty should help it to avoid the FDA definition of a medical device:
Per Section 201(h)(1) of the Food, Drug, and Cosmetic Act, a device
is: An instrument, apparatus, implement, machine, contrivance,
implant, in vitro reagent, or other similar or related article,
including a component part, or accessory which is:
(A) recognized in the official National Formulary, or the United
States Pharmacopoeia, or any supplement to them,
(B) intended for use
in the diagnosis of disease or other conditions, or in the cure,
mitigation, treatment, or prevention of disease, in man or other
animals, or
(C) intended to affect the structure or any function of
the body of man or other animals, and which does not achieve its
primary intended purposes through chemical action within or on the
body of man or other animals and which is not dependent upon being
metabolized for the achievement of its primary intended purposes. The
term "device" does not include software functions excluded pursuant to
section 520(o).
