Why is it Okay for movies / TV shows, to show that their story is based on real events when it is actually not?

I found this...

Question: 1) In a publication, what is the difference between saying “based on a true story” versus “inspired by a true story” and are there legal implications that could arise from either choice of words? (For our purposes, the “true story” language is going to be used in a Children’s Picture book about an animal. The book is about a real animal, containing some facts about the animal’s life, but the animal is anthropomorphized).

Answer: 1) No difference of any legal consequence between “based on” and “inspired by.” Each of them suggests that there is a core of truth to the story but that you are embellishing or going beyond the factual record. This is something we call “faction,” a conflation of fact and fiction and it can under some circumstances give rise to libel claims, but not if the story is about animals.

That was written by Steve Gillen, an Intellectual Property attorney, and comes from ibpa.com. So it appears that from a legal standpoint it isn't about fleshing out what fragments of truth would be in the story, but rather covering whatever might be potentially recognized as a true detail. By saying that the story is "based on" a true story, the actual true story part could simply be that something happened in Fargo, North Dakota. I realize that in this specific case he admits that the individual episodes aren't based on facts... that he is using the technique to sell his story. But the series is based on the movie, which was "based on" a true story.... so the thread could be continued just on that.

This isn't the first time a series has started like that, where the individual episodes indicated a story based on real life, but might actually be almost completely fabrication. Dragnet radio and TV episodes were mostly based on actual cases from the LAPD, but there was artistic license taken occasionally with how a case might have ended or even begun. When the Tom Hanks movie of the same name came out, it began just as the series had... claiming the story was true, but that the names had been changed to protect the innocent. Yet the story was a complete fabrication.

I believe that these statements, used as potential advertising in order to sell a product (the show), are in violation of FTC regulation as per: https://www.ftc.gov/news-events/media-resources/truth-advertising

I don't have time to fully research precedents and technical guidelines to when and when this does not apply, as apparently it's not being applied here, but one cannot deny that belief that a story is based on something that really happened is more alluring and thus has the effect if not intended effect of being a type of advertised statement. This is a deception. Disclaimers that come at the end of a show where they know no one tends to watch, are simply not good enough.

False advertising plain and simple. Some viewers might rightly claim that they were defrauded buying say the DVD of a season of Fargo on the advertised claim that the events happen exactly as they occurred.

I honestly don't see how anyone can see it any other way. It might hamper what some people think are artistic touches or tone generation in a work of fiction, but these are cheap tricks at best so I don't think much is lost by disallowing it or requiring a clearly visible disclaimer or asterisk next to false claims (narration claims differing from that of words spoken by fictional characters).