Click on the Discarded Fabric to complete the first part of this quest. This requires 30 Magic Cloth, which will be automatically removed from your Inventory. It will take 8 hours to collect the Discarded Fabric, but you can Speed Up this for 1,224 Food.
To complete the second part of the quest, click on the Carnival Pavilion. It takes 8 hours to attach the Discarded Fabric to the structure, and will remove it from your Inventory.