Very briefly it goes like this:
There was a very arrogant but stupid king who loved to wear the most expensive dresses possible. Once a group of tailors visited the king and said that they wanted to make him a magical dress. The magic of the dress is that only innocent people will be able to see it and sinful people will not be able to see it.
The king obviously was very keen to wear such a dress and gave the tailors a room in the palace to make the dress for him. The king could hear the noise of the tailors apparently making the dress behind the closed door. He once visited them to see how they were doing. The tailors said that the dress was going to be ready in a week time and showed their work in progress to the king. Obviously the king could not see anything! Knowing that this could imply that he was a sinful person he pretended that he could see the dress that was being made and started making comments on it.
After ten days the tailors announced that the dress was ready. The king entered the room and wore what he thought was a dress. He then came out from the room and stood in front of his guards, servants and deputies and ask them what they thought. Obviously no one could see any dress on the king, what they could see was the king with his under wears! However, fearing that they may be accused of being sinful, they all praised the king and the dress.
Being happy about all the praises, the king announced that he would go out in the public to show his new dress to his people. Two days later the king appeared in the high street of the capital of his country. When he came out of the curtains people first were shocked, however, being fearful from the king and also being told that only innocent people can see the dress, they immediately put themselves together and started cheering.
The king was walking in front of people and would stop every now and then to show off his 'dress'. Among all those people, there was a small boy who was trying to stand on his toes and see the king. As soon as he saw the king he couldn't stop laughing. He laughed and laughed and then shouted, 'look, the king is in his under wears!'
At this point people could not resist and they started laughing as well. It was only then that the king realised how the tailors - who were now long gone - made fun of him.
Every one who narrates this story finds one of the characters of the story to be interesting. Some emphasize on the cleverness of the tailors, some on the stupidity and arrogance of the king and some point out to the submissive behaviour of the king's servants.
To me, the most interesting characters are first the public, who by their initial silence and compliance contributed to the stupidity and the arrogance that was going on. The second interesting character to me is that kid, the one and the only one who said the truth without any hesitations and therefore made the public coming back to their senses.