He lays on the floor with his underwear on and rubs himself on the floor ,and when he gets up he looks aroused

This is normal as long as it's not excessive or the result of illness. Do NOT criticize him or give him the impression that what he's doing is wrong or evil, just make him understand that the behaviour is not appropriate in front of others.

I agree. I would just tell him not to do it. "David, stop that." Not everything needs a huge explanation.

If he does other things to stimulate himself in front of you and other people you can certainly teach him about private and public and include touching and rubbing himself in the things people only do in private like getting dressed and going to the bathroom.

Don't worry about it. And Don't tell him NOT to do it.
The important thing here is to tell him when and where it is appropriate. Tell him 'david, you need to go to your room to do that, that is a private thing'

Telling a child not to do something, means (to a child) that it is bad. And we do NOT want our children growing up believing our bodies and natural behaviors are bad.

He's a kid - distract his attention and ignore it.

Its natural, all little boys explore their bodies, he only does it because it feels good to him- in an innocent way