I've recently come across people mis-analyzing figurative language, or providing resources to students on the subject that mischaracterize completely how one should analyze such things, so it's inevitable that I would put up something on the subject. In particular, one of the resources in question claimed that similes are intended to be "literally true", which is supposed to contrast with metaphors, which are intended to be "literally false". There are several important things here.
(1) Similes are figures of speech. Not only are they figures of speech, they are nonliteral figures of speech. (As I've noted before, there are figures of speech that are not strictly figurative, but similes are not one of them.) Thus similes are not intended to be "literally true". "The clouds are like cotton candy" is not true if taken literally. Similes are very different from literal comparisons, e.g., "The clouds are like clouds of steam". Take a more obvious example: "John is like a cat" is a simile, and a figure of speech. "John is like his twin brother Richard" is a literal comparison, and not a figure of speech.
(2) Similes are metaphors. I know this is probably not what your elementary school English teacher said, but there is no real difference between the behavior of a simile and that of a metaphor. The only difference between "The clouds are cotton candy" and "The clouds are like cotton candy" is that the latter is qualified; but the qualification is of the metaphor. Take a metaphor, qualify it according to resemblance, and you get a simile, which is just an attenuated version of the metaphor; take a literal statement, qualify it according to resemblance, and you do not get a simile, but a straightforward, literal comparison.
If John does very well at handling unexpected situations, and I say, "John is so good at landing on his feet; he is like a cat", it's obvious that the simile in the second clause is just extending the metaphor and is not to be understood literally.
There is a very old and widespread view that similes are somehow more basic than metaphors, that, in fact, metaphors are just collapsed similes, but this view always had the problem that it failed to distinguish between similes and literal comparisons (the latter of which were usually assumed to be more basic, which is itself a dubious assumption). Metaphors are in fact more basic; similes are attenuated metaphors. The attenuation can make the metaphor more vague -- instead of the metaphor being X, it is now things-in-the-vicinity-of-X -- but it can also let you more conveniently specify the particular aspect of the metaphor that you regard as relevant, e.g., "Dave is swift like a deer".
(3) There is no such thing as "literally true" and "literally false", unless you just mean "true, if taken literally" and "false, if taken literally". Recognizing this, we see that whether a metaphorical expression is true or false when taken literally is irrelevant. "Don's pet fox is a fox" could in context be metaphorical, an expression of how clever the fox is, but if taken literally it would obviously be true. The same is true of similes.
