The towns people are foolish because they take strange pleasure in playing jokes on Gimpel and making him look gullible and ignorant. They don't see the goodness of his heart, nor can they appreciate how or why he puts up with everything that happens to him.
"It is not that he simply believes the outrageous things the villagers tell him, but rather, that he chooses to do so. For example, when the villagers tell Gimpel that his father and mother "have stood up from the grave," Gimpel states: "To tell the truth, I knew very well that nothing of the sort had happened."
The towns people use Gimpel, they laugh at him, having fun at his expense seems to be ok with them.
"The rabbi tells Gimpel, "It is written, better to be a fool all your days than for one hour to be evil. You are not a fool. They are the fools. For he who causes his neighbor to feel shame loses Paradise himself."