We remove the testes because they would make testosterone and virilize a girl. The phallus is recessed. Current techniques emphasize maintenance of innervation, and experimental evidence indicates that sensitivity in the new clitoris is preserved. However, none of the children has grown to adulthood yet to see if it works. The new techniques are very different than what was done 30 to 35 years ago.
Hormones are part of the picture too.
We initially try to re-create a normal puberty, give a little estrogen at first, then progesterone. The girl won't bleed because there is no uterus, but she can have normal cycles. Often it is possible to do this with birth control pills as the estrogen supplements. Berkovitz describes the technique. Skin and muscle bundles and accompanying vasculature are brought to an area of the penis to supplement the length.