If you're prone to exaggeration, it means you habitually overstate the truth. If you have a dog and a hamster, it would be an exaggeration to describe yourself as "practically Doctor Dolittle," living in a house full of animals.
When you make something showier, or more noticeable than normal, that's also called exaggeration. The exaggeration of your hand movements might be necessary on stage so the audience can see them, but in real life it just looks silly. Exaggeration comes from the Latin word exaggerare, which means to magnify or to heap or pile on.