Use 'act the fool' in casual settings, not formal ones where serious behavior is expected. At the party, he decided to act the fool to make the kids laugh.
Pro Tip 2/3
Not Insulting
'Act the fool' isn't normally used to insult someone, but to describe playful behavior. She acted the fool in the play, making funny faces at the audience.
Pro Tip 3/3
Self-Derision
It often implies someone is willingly being silly to entertain others without feeling embarrassed. Despite being the CEO, at the company picnic he acted the fool in the dunk tank.