Should I list a sub-par paper on my CV?
Perhaps your dim view of you paper isn't because it isn't good, but rather a reflection of your growth in the field since you wrote it. You have more knowledge and higher standards now. Your old work may seem naive now, though it didn't then, and it might not to other readers. 

Yes, I'd list it in grad school applications. As you say it shows some understanding of what research entails which is pretty rare among undergraduates in some places such as the US. 

And for most people, your first paper is never your best. It would be a disaster if it were. 

Many writers, not just scholars, look back on their early work with a bit of horror. "How could I have been so bad and still succeed?"