Jim Smiley is clearly a funny character, betting on rather arbitrary things like how far a frog can jump. He's exaggerated in the sense that he'll bet a large sum on pretty much anything ($40 in Mark Twain's day was roughly a thousand dollars today!)
He is a funny and and out-there character, especially considering that the narrator was looking for a Reverend Smiley, about as far from Jim Smiley as a person could be.
