Why cant the highlighted area be the collision?

Because even if I generate the most complex collisions using the collision tool, it is still far too messy. The character can hardly walk around.

Under your Collision you can set your Collision Complexity to “use complex collision as simple” to use your mesh data as collision. However, the better approach would be making your own collision in another 3D application.
Smash the answer button if it helped! <3

where can I find this button? I am not seeing it under the collision tab

It’s there, but you can also use the search function on top and search for “complex”