Can it also translate to 'How does the cloth fit'?
The translation is not correct "How does the clothing fits?". You can't use Does and add "s" to the verb at teh same time!
Thanks for pointing this out, I've fixed it now
Is this asking: "How do the clothes fit? Do they fit well/are they comfortable?"
or is it more confused like: "How do the clothes fit on such a big mannequin?"
It is the first one.
But given enough incredulity in your voice and context it could be the second. But you would probably expand the sentence. "Hvordan passer tøjet på den?!?".