Because only man has the true capacity for rational thinking, he is in this way also made in God's image. He does not act on instinct, but should be able to control his natural drives for higher purposes. God has given man free will, which likewise reflects God's image. Every man has the ability to choose for himself his actions. He is morally aware.
Man understands that certain things are good and certain things are evil.
Before the fall, Adam and Eve had no experiential knowledge of good and evil, but they most certainly understood that they should obey God's commands. If this were not so, God warning them about punishment if they disobeyed Him would have no meaning to them, and the fall could be viewed as entrapment on God's part. Adam most certainly did understand that disobeying the will of God was wrong, and there could be dire consequences to his actions. Although we now must struggle against our evil nature to obey God, we still have moral understanding and comprehension of good and evil. Lastly, one of the ways the image of God manifests itself in man is that only man can be aware of God and is capable of fellowshipping with Him.