Turns out you are right. He has experimented with masturbation (although not come to completion- sorry for the TMI!- according to his discussion with me). I am glad he feels comfortable enough to talk to me. Although I am VERY uncomfortable with the fact that my baby boy may be becoming sexually aware.... which I think is a normal part of motherhood. Thank goodness I just had one child. I have a feeling these teenage years to come may be a challenge like no other!
You can definitely know your sexuality by 12. I knew I liked girls since I was 5, no kidding. As soon as you go to school and are around your peers, it's natural human nature to get crushes and feel affinities towards certain people/genders. Aside from my little crushes at school, there were a hundred other tell-tale signs that made me know I'm gay, so 12 is definitely not too young. In terms of knowing what to say to him, I suggest you just get more educated on the issue. Coming here, posting, and asking questions is a great start, and I applaud you for it. It's good to know that you're trying to be understanding. There are a lot of LGBT websites that contain information for LGBT kids and parents alike. There are even YouTube videos as well.
I sorta knew I was gay before puberty...I felt different from others, but I haven't realized what those feelings had meant until I was 12 or 13. So yes, I think it is very possible to know at age 12.
He's really incredibly lucky to have a mom like you! And yes, I think all parents become uncomfortable when their kids hit puberty. Masturbation to completion will probably happen sooner or later, once hormones are fully raging, and semen production has started. You may be uncomfortable with the idea, but keep in mind: boys typically have a healthy sex drive, and this is heck of a lot better than anonymous hookups.