Most common method is firmware 'hacking'. I deal with these cards and flash drives all the time and I have never seen this simplistic file system level hack. There's 2 things the 'hacker' needs to accomplish:
- Device has to report a fake capacity.
- Device has to suppress errors when data is written to non existing NAND.
Hardware does not have to be changed. The reason we can do this is, is because all LBA addresses are 'virtual' anyway, we can map any LBA address to any physical address (PBA) we want at the firmware level. And probably all the 'hacker' would need is a piece of software the manufacturer himself uses to configure the firmware.
Most common M.O. for a fake flash drive is to simply drop writes after actual capacity. So let's assume a 256 GB fake drive with only 8 GB NAND installed then up to 8 GB all's well and it is in this area the file system stores most of it's meta data. Assuming some variant of FAT:
Boot sector | File Allocation Fable(s) | Root | DATA
The ROOT and subfolder created at this time can be created without issues.
ROOT
- SOME FOLDER
- SOME FOLDER
- FILE1
- FILE2
- FILE3
- FILE4
DATA
02 8A 00 28 A0 02 8A 00 28 A0 02 (FILE1)
8A 00 28 A0 02 8A 00 28 A0 02 8A
00 28 A0 02 8A 00 28 A0 02 8A 00 (FILE2)
28 A0 02 8A 00 28 A0 02 8A 00 28
A0 02 8A 00 28 A0 02 8A 00 28 A0 (FILE3)
02 8A 00 28 A0 02 8A 00 28 A0 02
-------------------------------- end real NAND
00 00 00 00 00 00 00 00 00 00 00 (FILE4)
00 00 00 00 00 00 00 00 00 00 00
As we save data 'real' NAND will gradually fill until we start writing to LBA sectors the firmware can not map to existing NAND. Usually this would get you an error but this is where the modified firmware starts fooling us.
Not only will it allow us to write to non existing NAND, it even allows us to read. And it's often at this point that user discovers something is wrong as he'll find such files to be corrupt.
While all meta data for FILE4 can be created as the directory structure and FAT are in real NAND memory, the file data will never actually be written anywhere.
We now immediately see why sometimes people catch the issue early when for example using a full NTFS format on their USB flash drive as this will try writing and verifying a backup boot sector towards the end and thus in non exiting NAND.
Since the 'hack' is at the firmware level, we can often undo it using so called mass-production tools (MPTools) that are normally used by the manufacturer to configure the firmware.
ChipGenius (the tool on the right) is used to determine the controller. With that we can find a MPTool to modify our firmware and restore the drive to it's real capacity:

BTW, one should wonder if it's wise to restore any such device to it's real capacity, IMO it's wiser to dispose of it.