Can a 7 in a half month old baby understand?

I was wondering at what age a baby can understand basic things. The reason I ask is because my son has a tendency to do things that we dislike and we tell him no, yet he continues to do them. For example he has a bad habit of grabbing his penis when his diaper is off. Now I know it will take him some times to comprehend no, but we say it firmly and move is hand away, but he starts grabbing again. No matter how many times I say no, he keep going at it until I have to pin his arms down while changing his diaper. He also has a bad habit of scratching his head. The thing is that he scratches it really bad, I mean to the pt of bleeding. We've tried lotions and everything suggested by the pediatrician but it does not work. He does not seem to have dry skin, so we assume he does this when he is sleepy or just plain stressed. When he does this we will tell him no, but he continues doing it. My question is if my son understands no but ignores or is it that he just does not understand what I am saying. I would think that when I move his hand from his penis and keep saying no firmly, he's be able to get it but he just keeps doing what he wants. Any suggestions?