A generous retelling ...
Arts progress somewhat like fashion. There are eternal verities around which variations develop. Some changes are introduced by new technology, affecting content (Science Fiction) or means (oil paints). Others are inspired by rediscoveries or by observations from other cultures. Yet others are brought about by anticipation, extrapolating from "interesting" contemporary work, fumbling ahead in the dark. A sequence of small steps may lead to a conscious break with the past, producing a trend, a school, or even an Age.
Trends come around again, lapping those slower to change. Problems can arise when the two camps can compare their works. If there's little difference what was the point of all that effort? Does the artistic journey (which is exterior to the work) matter? Clearly it does to many - people care about the authenticity of the work, and a painting made using the artist's blood will be viewed differently to one using brown paint. Borges' "Pierre Menard, Author of the Quixote" describes another example.
If the new work resembles the old but in some way seems less good (realistic but less detailed; formalist poetry but fewer sound effects, etc), the comparisons are more awkward still. Even in evolution there's no pressure towards complexity - changes can as often simplify: features atrophying, development arrested (a sketch accepted as a finished work). Is the new art older but wiser in some way? Maybe it is more sophisticated. A work of art requires an audience which the journey can create. The sum of a sequence of tweaks and reactions to previous works might not just make a new work of art possible but may make a pre-existing item into art.
The Emperor's parade was a mistake though, forcing the premature collision of two viewpoints - a Turner Prize without a PR machine. The masses may at first respect authority, but eventually they'll resent seeing their money spent in ways they don't understand. In such situations the artists' peers may offer no support, seizing an opportunity for selfish advancement.
The fable fits most closely with Minimalism. Yury Lotman wrote that "Artistic simplicity is more complex than artistic complexity for it arises via the simplification of the latter and against its backdrop or system". Poetry's gone through phases of selective minimalism, being shorn of various poeticisms and conspicuous craftsmanship. Random and procedural works (N+7 etc) in particular are met with responses like "I could have done that" (and if it's Found Poetry maybe they have indeed "done that"). Unless observers have been on the journey they won't understand - the Emperor should have educated his public.
The tailors who stitched the Emperor up were good at filling in grant forms; they were the performance artists of their time, creating a situationist stunt. But the Emperor wasn't merely a fashion victim - he thought he'd spent his money "quite well"; he was hoping to use the material to produce performance metrics to discern who was ignorant and incompetent. Only the failures would see him naked - he was prepared to accept that minor humiliation for a higher cause. The public were in fear of losing if not their heads then at least face, but at least they showed an interest in the arts. A child with nothing to lose, who could only see things as they are, symbolised another type of artist.
Those who come off worst out of the story are the administrators, the fawning staff who feared losing their jobs. No doubt they had wives and children to support. A more cunning advisor might have taken the Emperor to one side saying - "You and I can see the the fine cloth of course, but how will we know if others are just pretending that they can see? Let's devise a test, and try it out on those tailors first". A blind test perhaps. A contest with anonymous entries. Can real art survive such a trial? If people produce variations on a Mondrian piece (swapping colours around, say) they might be accused of lacking originality, but are the variations any more worthy of respect if Mondrian produces them? In the rarified world of high art, or Oxbridge entrance interviews, discussing marginal/charlatan works is one of the best ways to identify talent. That boy in the street deserves one of the Emperor's finest ice-creams.