This cap is essential in freeing Yuria the Witch from a prison tower in the Tower Knight Archstone. To obtain it, one must kill the Fat Official who drops the portcullis located above the first flight of stairs. He has a 100% chance to drop it, but only does so once per playthrough, as he does not respawn.
Upon obtaining the cap, one can free Yuria (Note that the Bloody Iron Key is required to get to the prison tower at all). Once inside the tower, equip the Official's Cap to fool another fat minister into allowing you access. The player can then kill him, and talk to Yuria. The player will not lose the cap after completing this task, and may continue to wear it. Removing the cap in the Official's view will cause him to become hostile, and the disguise will no longer work. However, he will not raise the stairs once it has been lowered.