James is not stupid, he's either horny or just denial
At best, denial, from what I can see. I mean, he "mishears" *a lot* of things his Mom says. And also seems to intentionally misunderstand what she's doing and wearing. As an 18-year-old, that seems... hard to believe.
I did just read a bit where he *did* realize that his mom is a nympho and willingly doing some sexual stuff, but then acts as if he doesn't understand it again later. It's a bit confusing for me. I guess a part of me hopes he realizes how depraved she's become and joins her in it willingly. That'd be pretty hot, IMO.