Yes, Google make it confusing, their documentation needs a lot of work. They say how to make it for specific screen sizes using "compatible-screens", then use supported-screens in a different situation. I thought this paragraph here helps make it clear about the impact of using compatible-screens element in your manifest, (emphasis mine):
In such a case, you can use the element to manage
the distribution of your application based on combinations of screen
size and density. External services such as Google Play use this
information to apply filtering to your application, so that only
devices that have a screen configuration with which you declare
compatibility can download your application.
The element must contain one or more
elements. Each element specifies a screen configuration with
which your application is compatible, using both the
android:screenSize and android:screenDensity attributes. Each
element must include both attributes to specify an individual screen
configuration—if either attribute is missing, then the element is
invalid (external services such as Google Play will ignore it).
What's confusing is they add this note afterwards
Note: Although you can also use the element for
the reverse scenario (when your application is not compatible with
smaller screens), it's easier if you instead use the
as discussed in the next section, because it
doesn't require you to specify each screen density your application
supports
"Easier" is relative to your needs, which is what confused me. Then they go on and say this (emphasis mine):
Caution: If you use the element for the reverse
scenario (when your application is not compatible with larger screens)
and set the larger screen size attributes to "false", then external
services such as Google Play do not apply filtering. Your application
will still be available to larger screens, but when it runs, it will
not resize to fit the screen. Instead, the system will emulate a
handset screen size (about 320dp x 480dp; see Screen Compatibility
Mode for more information). If you want to prevent your application
from being downloaded on larger screens, use , as
discussed in the previous section about Declaring an App is Only for
Handsets.
So it seems that "compatible-screens" will force Google play store to filter according to screen configuration. The "supports-screens" element affects your device's screen-compatibility mode, which is different from "compatible screens".