How did the Church decided that seven is the age of reason and the age for First Communion?

Answer

The Church does not define the age of reason as seven years old. Rather, the Church does not obligate Catholics under the age of seven to observe laws which are merely ecclesiastical. Even once the age of seven is attained, children who do not possess the use of reason generally are not bound. Code of Canon Law states, “Merely ecclesiastical laws bind those who have been baptized in the Catholic Church or received into it, possess the efficient use of reason, and, unless the law expressly provides otherwise, have completed seven years of age” (CIC 11).
In the case of First Communion, there is no age restriction. The Church simply requires that children possess the use of reason, know and understand what the Eucharist is, and are properly disposed. Canon law states,

The administration of the Most Holy Eucharist to children requires that they have sufficient knowledge and careful preparation so that they understand the mystery of Christ according to their capacity and are able to receive the body of Christ with faith and devotion. (CIC 913 §1)
It is primarily the duty of parents and those who take the place of parents, as well as the duty of pastors, to take care that children who have reached the use of reason are prepared properly and, after they have made sacramental confession, are refreshed with this divine food as soon as possible. It is for the pastor to exercise vigilance so that children who have not attained the use of reason or whom he judges are not sufficiently disposed do not approach Holy Communion. (CIC 914)