The main definitions of penal are (1) of, relating to, or prescribing punishment, (2) subject to punishment, and (3) serving as punishment. In short, it has to do with punishment.
Penile means of or relating to the penis.
Confusing penal and penile can have unfortunate results—for example:
When is it appropriate to consider a penal implant for a male in order to improve his sexual performance? [Toledo Blade]
Unnatural practices between males are a clear violation of Malawi’s penile code and cannot be condoned. [Times Live]
[T]hey’d have to turn Oklahoma into a penile colony in order to hold all the convicted CEO’s. [transcribed on NPR]
[It] reduces the risk cervical cancer in women and reduces the risk of penal cancer in men. [NewsDay]
These are positive examples:
The slide from grace of Ken Clarke has caused some glum faces amongst those who believe in a better penal system. [Independent]
A liquid pomegranate extract made by Pom and tested in rabbits improved penile blood flow and erectile function but did not fully restore it. [ ]