Sure, here's one example:
https://www.ebay.com.au/itm/175391555627

I actually purchased this item myself, and it was sent using an Australia Post label. Out of curiosity, I asked AusPost how much it would cost to post something like that myself, and they quoted me $10.

I'm genuinely trying to understand how sellers can afford to sell items for under $5, include tracked postage, and still make it work. Hoping someone can shed some light on how this is done — maybe there's something I'm missing.

Thanks in advance!

Thanks — I’ve definitely considered the China angle and loss-leaders. But in this case, the seller is based in Australia, and I’m almost certain the package came with a domestic AusPost label (I’ve got a photo of it somewhere).

My confusion is that even using a Small Parcel Post satchel at $10.95, there's barely any margin left if the item sells for $4–$6 with free shipping.

Are there discounted AusPost rates that apply once you hit certain volumes? Or are some sellers somehow managing to send large envelope-size parcels as letters under 5 cm? Just trying to wrap my head around the actual logistics.

large envelope-size parcels as letters under 5 cm?

No envelopes can contain items that are 5cm thick.

Standard DL envelopes are 5mm.

Larger envelopes are 20mm (2cm). I send a lot of books this way.

In the end all you can do is research postage rates and use the ones best suited to you.

Hi there! Thanks for the info. Just wondering—where do you usually source your envelopes from? I've been struggling to find good-quality ones that seal properly and hold up during postage. Appreciate any tips 😊

"Sure, here's one example:
https://www.ebay.com.au/itm/175391555627

I actually purchased this item myself"

That  listing shows   'Australia Post Domestic Regular Letter Untracked"

Shonky sellers like that with appalling feedback are  either 1) dropshipping  and/ or importing  stock from  Shein, Temu, China in general,  for next to nothing.  

Hard to believe you bought  and supported a seller with such poor feedback !

Australia Post prepaid.

With edges reinforced with sticky tape.

That’s how I send mine…