“A wooden puppet's journey to becoming a real boy — proving himself through honesty and bravery.”
Naivety is both his greatest virtue and his biggest flaw — he has no malice, which is exactly why he's so easy to deceive. The lying nose is the story's way of saying his inner state can never be hidden. In the end, the willingness to risk his own life for his father is what earns him the title of real boy.