Plug and Pray!
They weren't fake long file names. They were actual long files names but of course the operating system that didn't support long files names didn't know what to do with the (very real) long file names. It only knew the 8.3 file name that was also set for compatibility.
Of course it sucked if you looked at or worked with DOS based apps. But it was one of those things that was always good about Microsoft Windows: Backwards compatibility.
They literally would build in (bug-) compatibility layers for specific games, where if they detected you were running a particular game, they'd not use the fixed or optimized code paths, but the old ones / emulate / patch things as the game expected them to be. And that was not because Windows was buggy and the games were good. It was the other way around. Games used trickery and internal knowledge that they shouldn't and if/when MS would block those paths or change internals, those games would stop working or crash.