Exfoliating your lips does two things. First, it removes rough, dead, dry skin cells that cause your lips to look dull and flat. More importantly, exfoliating increases circulation to your lips and that makes them look fuller and gives them more color.
The best exfoliant for lips is a mixture of sugar and water. Add just enough water to make the sugar pasty (so not much) and then apply it in small circles. Be gentle with the application.