It is real, and the flame is man-made. Most devotees know it too. It has been an ancient practice. Only recently there was a court intervention, but they too concluded that matters of belief cannot be interfered with. There is a slight distinction between:
(a) a star, Sirius, Makara Jyothi that appears in the sky and
(b) the flame (Makara Vilakku) that is lit in Ponnambalamedu
The belief that witnessing it is auspicious is not so much dependent on whether it is miraculous or natural or man-made. It's like respect for the national flag, you know it's a small colored piece of cloth that someone someday stipulated it be a symbol of something, but it gains its honour from the feeling it evokes in those who respect it.
https://en.wikipedia.org/wiki/Makaravilakku