The speaker admits to a painful kind of self-deception. They describe loving someone who was never real: a "perfect, fake" boy copied from magazine covers, the way you might trace a drawing. Because he was made from glossy, polished images, he comes out "flawless," which is exactly what makes him false.
The image of the heart as a pencil does a lot of work in a few words. A pencil can draw, but it can also wear down, break, or be erased. The opening word "Shreds" in quotation marks suggests that something has been torn apart, perhaps the speaker's hopes or sense of self. The poem seems to say that the speaker built a fantasy of "unity and happiness," then had to face the gap between the fantasy and reality.
The mood is sad, quiet, and a little embarrassed. The short last line, "But I was all wrong," lands bluntly, like someone finally being honest with themselves.