A king named Cambuskan ruled with two sons (Algarsyf eldest, and Cambalo) and a daughter, Canace. At the twentieth anniversary of Cambuskan's reign, he holds a feast, and a strange knight approaches him bearing gifts (a motif common in Arthurian legends). These are a brass steed with the power of teleportation, a mirror which can reveal the minds of the king's friends and enemies, a ring which confers understanding of the language of birds (as some legends say King Solomon owned), and a sword which deals deadly wounds that only its touch can heal again (both the spear of Achilles and the Holy Lance have these powers). After much learned discussion of the gifts, digressing into astrology, the first part of the tale ends. A subplot of the tale deals with Canace and her ring. Eagerly rising the next morning, she goes on a walk and discovers a grieving falcon. The falcon tells Canace that she has been abandoned by her false lover, a tercelet (male hawk), who left her for a kite. (In Medieval falconry, kites were birds of low status.) Canace heals the bird and builds a mew for it, painted blue for true faith within and green for falsity, with pictures of deceitful birds, outside. (This image is based on the Romance of the Rose.)
The second part ends with a promise of more to come. Cambuskan's sons and the quest of Cambalo to win Canace as his wife. (The prologue hints that Canace and her brothers commit incest, as in John Gower's version of the story.) However, it is extremely unlikely that Chaucer ever intended to finish the tale. Instead the Franklin breaks into the very beginning of the third section with elaborate praise of the Squire's gentility (the Franklin is somewhat of a social climber) and proceeds to his own tale.
In general, modern critics have not paid it much attention and consider it Chaucer's way of poking gentle fun at the young Squire's love of romance literature, frequent and somewhat pretentious digressions, and lack of narrative self-control. Compared to the tale told by his father, the Knight, which is formal, serious, and complete, the rambling and fantastical story shows the Squire's inexperience. Some critics see the gifts as symbolic of the powers of poetry, which the Squire is still learning to use.
There is no clear source for the story but is instead a collection of ideas and themes from many romances as befits the Squire, a lover of such literature. The extravagant details on eastern kingdoms come from the travel literature of the time such as Giovanni da Pian del Carpini, Simon of St Quentin and John Mandeville. The episode of the falcon and the tercelet is similar to part of Anelida and Arcite, an early work of Chaucer's.