Hjörtur Gísli Sigurðsson, curator of the Icelandic Phallological Museum explained what it's like to run such a museum in this article (probably NSFW) (http://mentalfloss.com/article/64079/11-things-know-about-what-its-run-penis-museum).
He explained how his father started collecting them in 1974, how most of the exhibits are courtesy various Icelandic mammals, how the one human penis in the museum came from a 95 year old man donated his to the museum after his death, how they have 23 specimens from elves, trolls, and mermen (most likely man-made) many of which were family heirlooms, and they have practical utensils - cutlery, lamps, bottle openers, etc.