They only had story-telling way back. By the time they learned how to write it down, the stories were some real whoppers. Think Genesis and the book of Enoch, but also all mythologies had huge stories.
I think, just as we know today's movies are fictional, people tended to know stories were fiction back then. But that was somehow forgotten as the telling went on. Imagine some of our modern "based on a true story" or "inspired by actual events" movies becoming the accepted history in the future...or even worse- pure fiction is believed to be true. Think ABRAHAM LINCOLN- VAMPIRE SLAYER.
Let me indulge on another silly idea you WILL hear. There were baby animals and just dinosaur eggs on the ark. Or there were actually 3 arks, but the tale got simplified. One ark landed at Australia and the ark with dinosaus sank in some battle of faith. The third had Noah and the animals of Europe, Asia, Africa....and they walked a land bridge to the Americas. Can you see a great story-telling out of that?