What does it mean that "It is blown out of Proportion?"?

Means that someone made it out to be much more than it really was.

For example: Petty theft - a man walks into a department store to window shop and while there, decides to steel a shirt and watch. He gets caught, arrested, and charged with petty theft. The sentencing judge doesn't like the way the guy looks or his attitude, or maybe the store is also the judge's favorite place to shop too, so he sentences the thief to 5 years in prison, a sentence that is 'way out of proportion' (beyond all reason and necessity) to what the guy actually did. The accused normally would have received probation or similar, but he got a sentence beyond the norm, an excessive overreactin.

It means that someone has made a mountain out of a molehill

Mountains out of molehills, a lot of soup from only one oyster?

I think it means that the story being told is being exaggerated a bit and is not as important or as relevant as being told.

thought it was kinda obvious, but it means that someone has taken a situation and made it into something more than it was.

There exagerrating