Are you asking why the amplitude decay is independent of the wave shape?
A wave is in the form x = A*cos(wt+phi), there is no reason that A, w, phi cannot also vary with time to give a more complicated wave. The multiplication of A with the wave shape (the cosine term) means the wave gets smaller in height as time goes on, which reflects our observation of decaying oscillations.
I don't really understand the question,
Do you disagree that the function represents a decaying wave?
Yes, exactly (although it is not an epsilon, its an exponential).
The graph below shows the final wave, and the amplitude is the dotted line. So the overall wave is being "squashed" over time because the amplitude is dropping.