The cloak doesn't change color, it just is multiccolor
#How do I use the Rainbow Cloak Knight Skin by Basil?
rigid rivet
near mauve
This response wasn't helpful to me, but I did eventually figure it out. In Custom Knight Options go to Open Folder and open the Rainbow Cloak skin folder. The problem is that there isn't a Knight.png in the global folder. Go to Knight > 0.Atlases and copy the Knight.png out to the Rainbow Cloak folder. Open skin-config.json and chage line 7 to:
"detectAlts": true
and replace the Knight.png alternates with
"Knight.png": [
"Knight.png",
"knight nb flag.png",
"knight rainbow.png"
],
then save and close skin-config.json, close the folder and click "Reload" in the Custom Knight Options. It should load the rainbow skin and you should be able to click "Alternates" and select alternates
jaunty lava
Fwiw, while your method works thanks to recent CK updates, originally that wasn't possible.
It sounds like you originally just didn't install it correctly (since you mentioned having a subfolder).
You would normally have just moved your preferred Cloak iup a folder, and made sure it was named Knight.png.
But having the new Alts be available is pretty cool 
rigid rivet
Also fwiw it probably wasn't helpful for you because iirc the original question literally thought the cloak was supposed to change colors lol. It wasn't about using custom knight/setting up skins correctly (which would have been more obvious if the original post wasn't deleted ) which is why the FAQ suggests making your own post rather than digging up an 8 month old one
near mauve
Fair enough, I just searched for Rainbow Cloak, this was the only post that came up, and the question was deleted so I figured if anyone else has this issue they might end up directed here in the same way I was
rigid rivet
If you'd read the FAQ you would have found all the info on setting up custom knight
near mauve
I have successfully installed CK and run multiple skins without this issue. This skin is the only one with a "Knight" subfolder that messed all that stuff up
rigid rivet
There are many skins that don't download with the correct folder structure. That's why the example screenshot exists in the instructions.