To complete the first part of the quest, click on the Court Jester. He says:
"The spectators are going to need something over their heads. Just because the King gets a royal box doesn't mean you can neglect the audience."
If you already have 60 Magic Cloth in your Inventory, then the second part of the quest will be completed as soon as you receive the quest. If not, then you should send Magic Cloth to your neighbours as Gifts. They should then return the favour.
Finally, click on the Tournament Grounds to erect the roof. This will take 12 hours, and remove the 60 Magic Cloth from your Inventory.