Both the poet and his mistress pretend: she lies about her virtue; he feigns youth and naivety. Their mutual deceptions preserve the relationship and mask the truth of age and infidelity.
The poem's central argument (lines 11-12) is radical: 'O love's best habit is in seeming trust, / And age in love loves not to have years told.' Love's fundamental 'habit' (characteristic, practice) is seeming (appearing, dissembling). This isn't accidental—it's where love's value lies. To love is to perform trust even when untrustworthy. To age and be loved is to enforce muteness about aging. The poem suggests love is inherently performative; authenticity would kill it.
The final couplet—'Therefore I lie with her, and she with me, / And in our faults by lies we flattered be'—puns on 'lie' (recline, have sex) and 'lie' (falsehood). They lie together physically and morally, and in this tangled deception find flatttery. The word 'lie' becomes a nexus of meaning: false speech, sexual contact, and horizontal position merge. Their entire relationship is built on this punning collapse of meanings.
Like a relationship where both people pretend to be younger, more faithful, or more interested than they actually are, and the deception is more intimate than truth would be. It's the Netflix show everyone watches but doesn't discuss: the mutual agreement to not acknowledge reality.