They just use dynamic bone colliders, and a studio object like the Onahole is animated. The bone colliders are confgured to pull dynamic bones towards it, so this gives the penis objects somewhere to point at. The onahole's scale is animated to create the illusion it is being opened and stretched. If you dissect any of his scenes, the illusion goes away when you remove the censorship. Penetration in KK always looked kinda scuffed no matter the technique used to simulate it, so I honestly prefer it with the censorship.
There IS a mod called "Better Penetration" which creates loads of dynamic bones for vaginal penetration, and these can be used with a studio dick object and bone collider to create a more convincing facade. But if you put censorship over it, that detail is hard to see so I understand why Hongcha uses the animated onahole approach. You can see that even with the censorship.