How are old historical texts translated to modern languages?

Obviously as time dies languages do too. This was true for Latin, Hieroglyphics, etc.

As well as this, language tends to evolve. Even within the past 100 or so years, we can see how English has evolved quite easily, and how some words died, like Carpetbagger, and others were so integrated that their old-timey sound stuck so well we don't even notice how archaic it sounds, like Movie.

So my question is pretty simple. With all the evolution and change and death and rebirth, how do languages get translated to modern English, French, Spanish, etc. and still hold their original meanings, as in, how do we know the writer is being hyperbolic or not?

I know Ancient Greek somehow didn't actually get forgotten, so things like those are translated pretty accurately but, say, Old English, which is extremely different from Modern English, and hasn't been spoken in quite some time.

And as a side question, how do we know we're right about it? Surely large events are recorded across the entire nation or possibly continent, but how do we know things like, say for example, the Trojan Horse, didn't actually happen (this is an example, I don't know if it did or not), while stuff like a philosopher throwing his bowl, one of the only two material possessions he owned after being cast out of his city, after seeing a homeless boy drink from a puddle with his hands (yes, this apparently did actually happen) did?

Isn't it all just word of mouth?

I know this is technically 2 different questions, but I felt they corresponded with each other, so I figured it would be fine. You don't have to answer both, hell, you don't have to answer either, I just wanted to know.