I think people understand the odds are small. However, perhaps they perceive their chances of meaningfully turn around their life in other ways have even smaller odds. i.e. improbable vs actually impossible. At least the lottery doesn't care about your current circumstance and everyone has an equal (equally small) chance. Secondly, because everyone realizes the chances are small, the real product being sold is Hope.…
Until someone says "you know what, what the hell, that's as good a pick as any", I'm going to go with "they don't know how small the odds are".