How did Facebook determine that Schrems was gay? Do they even know he's gay? Just because they showed him an ad for something that gay people would find relevant doesn't mean they targeted him for being gay. Its possible he likes a lot of stuff gay people like. I get targeted by advertisements for institutions offering degrees in Christian studies or some such thing, even though I'm an atheist. But say I was a Christian, should I then deduce that Facebook knew I was Christian and used that information?
They are just spraying and praying with their ads on best guesses as to what is relevant to you.
How is this a lawsuit?
It's a lawsuit because Schrems only needs enough of a basis to force the courts to consider certain issues, and to make statements about how GDPR should apply in principle in certain situations, in order to effectively restrict big tech's use of data.
It's a case brought strategically in order to trigger certain questions of interpretation of GDPR rules to be litigated.
Schrems' specific claim only needs to hold enough water to give him standing to get the case through enough filters in the court system to facilitate this.
They showed that people running to catch a ball would follow an inefficient curved path as a result of this, rather than actually calculating where the ball will land and moving there in a straight line to intercept it.