We had come home and Owen jumped off the bed and went to another room cowering. He was scared. Most of you know that Owen is not abused and is well taken care of but he acted like I would expect an abused dog to act. He had gotten into garbage and had been chewing on them (an empty chip bag).
We did not react but did what we usually do and tell him no then put him away from us on his bed and ignore him. For the non regulars Owen is not hit and is not yelled at. The most we will do is a sharp NO to him.
My question is why he was cowering and so scared? Am I dealing with his chewing up stuff incorrectly? Do dogs understand when they do a behavior that it will lead to them getting punished?

My dog knows when he is bad. I don't get how his mind works. He gets into the garbage, knowing full well he is being bad but he does it anyway. Once he's discovered, he runs to another room and hides.

Maybe this is all Owen is doing... he may realize he was bad... actually, I'm fairly sure he knows it.

Dogs have a conscience. Cats don't.

You handled it just fine, mogrann. Give Owen a hug from me.

3 of our 4 do this and are like Owen not hit or physically reprimanded, a stern NO is what they get.
If some one runs into another room to hide when I get home, then I know I need to go looking for my shoe or a baby toy or similar, actually they usually take me right to it.
The fourth hasn't been with us for very long and was tied outside on a chain before we got her, she really has no idea sometimes that something she did was not acceptable, but she is learning.
So I think if they have been taught what is not acceptable, then yes if they do wrong, they realize it and feel a little guilty.
You handled it just the way we do, a firm NO and make no big deal of it.

Thank you all for the responses. I did feel bad when he was cowering but still followed through. I made sure not to do the ohh what is wrong boy you are okay and lots of love as I thought that would be reinforcing the behavior.

Brook won't look at me, looks sideways, when she knows she has done something she knows isn't allowed, like getting into the garage garbage bin if the door is open.

Oh yes, they know !