Sancho follows Don Quixote out of simple minded curiosity, greedy intentions, and eventually loyalty. Sancho's character is one that exists both inside and outside of Don Quixote's mad world. Other characters play along with and exploit Don Quixote's madness, but Sancho often lives in and adores it, sometimes getting caught up in the madness entirely.
An example of this is when Don Quixote and Sancho encounter two monks and a carriage carrying a lady and her attendants. Don Quixote thinks that the two monks are enchanters who have captured a princess and attacks them, ignoring Sancho's and the monks' protests. He knocks one monk off his mule.
Sancho, believing he is rightly taking spoils from Don Quixote's battle, begins to rob the monk of his clothes. The monks' servants beat Sancho, and the two monks ride off. This shows how much Sancho gets caught up in Don Quixote's madness, since in reality there was no “spoils” to be won from the fallen monk. On the other hand, Sancho often chastises Don Quixote for his reliance on fantasy. Sancho effectively acts as Don Quixote's foil. Sancho also has a quick sense of humor to counter the solemn nature of Don Quixote. Sancho also only deceives and lies only when it suits him, and tells the truth and sticks to reality when the odds are against him. An example of this is when Sancho and Don Quixote leave an inn, the innkeeper demands that he pay for his stay.
Surprised that he has stayed in an inn and not a castle, Don Quixote refuses to pay on the grounds that knights-errant never pay for lodging. He rides off, slinging insults at the innkeeper. Several rogues at the inn capture Sancho, who also refuses to pay. Sancho finally gets away and feels proud for not having paid. It is in this way that Sancho twists reality to fit his own needs.
Living in both Don Quixote's world and the world of his contemporaries, Sancho is able to create his own niche between them. He embodies the good and the bad aspects of both the current era and the bygone days of chivalry.
But it turns out that the innkeeper has stolen Sancho's saddlebags anyway. Through Sancho, Cervantes critiques the ill-conceived equation of class and worth. Though Sancho acts ignorant and foolish, he nonetheless proves himself a just ruler, better than the aristocratic Duke. By the time Sancho returns home for the last time, he has gained confidence in himself and in his ability to solve problems.
