Engines don't know anything. They just do what you make them do. He made it try to fly fast with a lot more load than normal. With the extra drag, it got a lot less cooling as the cooling air moved over it a lot slower than normal.

Also, the load on an engine comes from two things. First thing is the drag of the airplane and whatever is attached to it. Second thing is the prop.

When the drag increased greatly with the addition of the banner/streamer, the speed is slowed greatly. Not only will the cooling get screwed, but the prop now winds up operating at a higher AngleOfAttack. AOA of a prop is a function of it's airspeed. The faster it goes, the flatter the AOA. The flatter the AOA, the less the load. Props unload in the air, you can hear it. They're unloading as they pickup speed in flight. Stop them from picking up speed and they don't unload. The engine stays under that load that's usually "unloaded". Put a flatter pitch or smaller diameter prop on, and it'll have a chance to unload. It'll also have an easier time pulling the new load.

No, the engine didn't know. It just ran much hotter than before. It started predetonating thanks to the extra heat and wound up melting the inside of the head and the top of the piston.

What can the modeler do? He had originally tried a couple of different props to see which flew the plane best. He could have tried that again when he altered "the plane" with the streamer to see what prop would permit the engine to deal with it's new work load.