You put your own reputation on the line when you write a letter of recommendation. If you feel you do not know the person well enough, or they are somebody you cannot in good conscience recommend, decline their request.
Don’t exaggerate -- show where and how they can improve. Don’t put the candidate on a pedestal. Not only does it not look plausible, it will also set expectations for them that will be next to impossible to meet. If they have an Achille’s heel, don’t exaggerate it, but don’t hide it, either.