Souls essentially dressed in rags? (7)
I believe the answer is:
paupers
'souls' is the definition.
The answer and definition can be both people as well as being plural nouns.
Maybe you can see an association between them that I can't see?
'essentially dressed in rags?' is the wordplay.
'essentially dressed' becomes 'u' (I am not sure about this - if you are sure you should give a lot more credence to this answer).
'in' means one lot of letters goes inside another.
'rags?' becomes 'papers' (rag is a kind of paper).
'u' inserted inside 'papers' is 'PAUPERS'.
Can you help me to learn more?
(Other definitions for paupers that I've seen before include "Poor, destitute people" , "People wanting" .)