Jesters were servants, who were paid to entertain. Their work included anything that might be entertaining, ranging from juggling to insulting their lords and their guests at the dinner table.
There were not very many people who were wealthy enough to have servants devoted to making fun in such ways, so jesters were usually servants of wealthy lords. As such they might have slept in the manor itself, as other servants often did. If they did not sleep in the manor, they would have lived nearby, probably in a cottage.
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