Nobody will use anything that includes $3-5 transaction fees to buy something unless it's over $500. That you haven't used it is prototypical. Nobody has used it because traditional alternatives like Visa, Mastercard, or cash are better.

I doubt it happens directly on the blockchain, but there are plenty of things built on top of bitcoin that make that work. Its like arguing that no one uses bank accounts for small purchases because wire transfers are too annoying.

How does the payment you're describing work, if it's not on the blockchain?

I'd imagine it uses a lightning network or something.