Exaggerate makes things bigger than they were. Embellish adds things that were not there.
When a child tells a tall tale about their weekend, they might be exaggerating or embellishing, and the two are easy to confuse.
To exaggerate is to make something sound bigger, better or worse than it really was. A small wave at the seaside becomes 'a wave as tall as a house'. Nothing new has been added; the real thing has just been stretched.
To embellish is to add extra details or decoration. Embellish can be completely innocent: you can embellish a birthday card with glitter and ribbon. In a story, embellishing means adding bits, like saying a seal waved at you from the rocks when there was no seal at all. Exaggerate stretches; embellish decorates.
To add extra details or decoration to make something fancier.
Similar: decorate, adorn, beautify
To make something sound bigger, better or worse than it really is.
Similar: overstate, inflate, overdo
Closest-meaning questions may offer 'decorate' and 'overstate' as options. A child who only thinks of embellish as 'making a story bigger' can miss that its first meaning is to decorate, which is often exactly what the question is checking.
Definitions and example sentences on this page are the ones a child sees inside Wordrealm, taken from our list of over 1,100 words. It is free to browse, with nothing to sign up for.
Plain-English guides to each test, from the councils’ own pages: Kent Test · Medway Test · Bucks Secondary Transfer Test