To mythologize is to turn an event into a myth, especially by exaggerating it. Some parents mythologize the story of their child's birth, telling it again and again until it becomes a well-known story.
When you talk about the past, or some incident or experience from your life, you can mythologize it by making it slightly more exciting and interesting, and by re-telling the tale over and over. An actual myth becomes well-known through repetition by many people over many years (generations, even). To turn an ordinary event into something of a myth is to mythologize it. The word comes from the Greek mythos, "story, speech, or anything delivered by word of mouth."