Dramatic Irony

The reader or audience knows something the character does not, so the character's words and deeds take on a meaning he himself does not perceive.

In Don Quixote

as everything our adventurer thought, saw, or imagined seemed to him made and done in the manner of what he had read, as soon as he saw the inn it presented itself to him as a castle, with its four towers and spires of gleaming silver, with its drawbridge and deep moat, and with all the appurtenances such castles are painted with.

The same sentence that describes the castle says the gentleman "saw the inn": the reader knows what is there and watches the hero deceived, and it is from this difference in knowledge that the episode draws its laughter.

Part One: The Gentleman and the Windmills, the narrator, on the gentleman's arrival at the inn

that wise necromancer who keeps account of my affairs and is my friend [...] some wise friend must have carried you off in flights without your feeling it.

Part One: The Penance and Micomicona, Don Quixote, to Sancho, who says he went to and came back from El Toboso in three days

I know and I hold that I am enchanted, and this is enough for the security of my conscience; which would be very great if I thought I was not enchanted and let myself stay in this cage, lazy and cowardly, cheating the aid I could give to many needy and destitute people who must at this hour be in precise and extreme need of my help and support.

Part One: The Cage and the Canon, Don Quixote, to Sancho, inside the cage

that was the first day on which he came to know and believe, through and through, that he was a true knight-errant, and not an imaginary one, seeing himself treated just as he had read such knights were treated in past centuries.

Part Two: Montesinos and the Puppet Show, the narrator, on Don Quixote's arrival at the dukes' castle