The most common and most likely answer to this crossword clue is the 7 letter word COSPLAY
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Buddy explains!

The straight part
We know that "Fancy dress" is the straight/definition part of the clue. The straight part is often a synonym or definition, in this case fancy dress = cosplay.The cryptic/wordplay part
In cryptic crossword there's often an wordplay/cryptic part as well.This part involves a more complex hint, such as an anagram, homophone, hidden word, etc.
Sadly, We don't have an explanation for this specific crossword clue yet.
What does COSPLAY mean?
COSPLAY noun- The art or practice of costuming oneself as a (usually fictional) character.
- A skit or instance of this art or practice.
- To costume oneself as a character.
- To costume oneself as (a character).