Wrestling is entertainment. It's not supposed to be real. It's the pagentry and the drama that draws in viewers. The over-the-top characters, the hype before the matches and the insults thrown back and forth between the wrestlers are what makes it interesting. I've been watching it since the mid-80s and I've gotten a lot of enjoyment out of the "suspension-of-disbelief" aspect. When I was younger I'd enjoy imagining myself being one of the people involved.
Professional wrestling is "simulated" in the sense that the outcomes are predetermined, and their effects upon the opponent exaggerated. Some treat the performance as a form of entertainment or drama, and would not use the term "fake" in describing it. Various pro-wrestling moves cause genuine pain and can cause serious injury if performed incorrectly.
The vast majority of the matches have pre-determined results and are said to be "worked". The results are determined by "bookers" to maximize "heel heat" for the bad guy and "(baby)face heat" for the good guy, often in the context of a long-running "feud" or storyline. Typically the wrestlers will work out some signature "spots" marking key moments in the match in advance. During the match, the move sequences and transitions are improvised with the participants "calling spots" to each other to inform them of their next up-coming move. The referee is also often involved in executing the match to schedule and dealing with unforeseen circumstances.
The vast majority of bleeding incidents in wrestling are "real", and are typically induced by using hidden razor blades to cut oneself on the forehead; the act of cutting is known in the business and among fans as "blading", and bleeding is known as "juicing". If a wrestler bleeds without being cut, such as due to an accidental broken nose, he is said to be "juicing hardway". If a wrestler hits another wrestler harder than he should on purpose, that is called "stiff," "being stiff," a "potato" or "potato shot."
Besides the somewhat real violence however, there have constantly been times where the division between reality and fantasy has been blurred, especially when it comes to who should win the matches. See the Clique as an example of this. On occasion, although increasingly rarely in recent decades, a wrestler will shoot, or ignore the script and attempt to win legitimately. This is also known as "going into business for yourself." In the past, promotions' World Champions were often intentionally-chosen "hookers" such as Lou Thesz who could defend themselves if the fight became real.