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I don't exaggerate or list things I don't have significant experience with, but a relative who's in recruiting keeps telling me I'm doing it wrong. But I think they mostly do recruiting for big companies with bad automatic filters or people who don't understand the job doing the first weed-out pass on the résumé pile, so maybe that's why.

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The recruiter's interest and yours are not aligned. Recruiters would like everyone to list every skill on their resume. They have nothing to lose from you being interviewed for a position you're not suited for. And they get paid if you get hired into something that isn't right. Both these outcomes are less good, for you, than being interviewed less and only hired into jobs which are right for you.

Recruiters get paid per interview? Or directly when someone got hired?

I thought it was more common that they'd get paid per person hired and still at the job 3 months later? But I'm a bit clueless

no, they get paid when you are hired. but the more people they send to interview, the more likely they are to get a hire, whether a good one or an indifferent one.

Aha, they're happy with mediocre hires, just good enough -- although it could have been (much) better for the company with another person

A bit misaligned incentives in the same way as agencies have, I'm thinking

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