Good point and I wish I knew. First of all, they're wrong when they say wrestling is fake to begin with because it's not. It's scripted. There's a big difference. There are to REAL wrestlers REALLY in the ring together and sometimes, they REALLY get injured. Saying that it's scripted implies that the results are predetermined but if it was fake, then they might as well have been two cartoon characters drawn on paper. I love your comparison to movies being fake and having fake dinosaurs. Good point.
As for the blood, the blood is real too. The ref simply passes a blade to the wrestler who cuts him/her self in order to bleed. If these people ever noticed, 99% of the blood comes from a cut over the eyebrow in the same place. Cutting yourself there can produce a lot of blood, not cause permanent injury, and within 3 days the cut is healed. It explains why after a PPV, the wrestler has a bandage over the eyebrow the next night on Raw, but by the following week it's completely gone.
If these people would listen, wrestling is classified as "sports entertainment" with an emphasis on the second part.