Well, when they were fighting Zabuza, Naruto turned himself into a large shuriken that Sasuke then threw (in fact, he was able to use an actual shuriken technique with it).
So yes, it's actually shapeshifting.
I always assumed transformations would "fall apart" if really put to the test, sort of like a clone poofing after it gets hit.
Like, the plan worked because the Naruto-shuriken actually missed. If it'd connected it probably would have bounced off like it was made of cardboard, or something.
Otherwise there's just no explaining why people aren't using it
all the time.
Like, transform yourself small for infiltration. Transform your hands into knives. Transform into random objects in the environment to hide yourself - actually Naruto did that one at least once, but still: criminally underused.