Nitpick, there are two kinds of "flopping" in sports, which you can both observe e.g. in soccer.

One is to simulate a made-up foul as you say, basically trying to mislead the referee into giving an unjustified penalty. This is clearly illegal and constitutes a foul itself.

However, often players flop to highlight fouls that actually happened but were so subtle or hard to see that the referee missed them.

The results are still ridiculous - Ronaldo rolling in pain on the grass because the other player had briefly pulled his jersey - but the greater strategy here is valid: If small, subtle fouls went unpunished, they'd be an easy way to gain an unfair advantage for your team. So the game would very quickly turn into a contest of how to hide fouls best from the referee. By highlighting fouls to a ridiculous degree, players are counteracting this.