Knightmare.com

I know that, early in season 3, we met Motley and Treguard told us that he was Folly's replacement, but was there ever more information on what happened to Folly?

No, but my suspicion is that he was the jester that Lord Fear mentioned Lady Brinkatore having an affair with in season 6.

He pops up in Surrounds as a pipe player in the Crazed Heifer.

I reckon he was exiled to another country for winding up the wrong person.

Motley took his soul, much like Shang Tsung does in Mortal Kombat.

Folly is currently living in America. After he was replaced by Motley, he sank into depression, gaining significant weight, and a tasty beard, as well as neglecting his hair care. After around a year of this, he was spotted by an American gentleman called Vincent Kennedy McMahon, who took a shine to folly, and promised him a new career, entertaining thousands of children on a nightly basis. Folly readily agreed, but deciding that a new career meant a new start, he changed his name to Foley. The rest is, as they say, history.

Folly is God.

Another case solved.