Yeah, he definitely knows.  
I talked to my trainer the other day about it. And to dogs, marking is completely different that peeing to them.  
Especially if it's on a person or a towel. They definitely know the difference between marking and peeing. I went from wookie marking 25 times a day... to trying to mark once a week.   
You just have to make sure to follow through. Make a huge fuss, and then put him in a place where he is allowed to pee, then praise him for peeing in the right place right away. It's been a miracle saver to me.     |