He's doing it for you! He plays the fool for Haggard, trying to divert him from wondering what you are.
7 seconds sound clip from the The Last Unicorn movie soundboard.
You can hear this line at 01:02:02.489 in the Blu-ray version of the movie.
Quote context
[...]
- Now that I'm a woman, everything has changed.
- Everything has changed, everything has changed.
- Schmendrick will find a way down to the Red Bull. He has been searching every day.
- I hope for no help from him. He's no magician now, but the king's poor clown.
- My lady!
- You know that perfectly well, so don't be stupid.
- Har-har. So that be a unicorn! She is very beautiful.
[...]