American chaps worn by the Spanish kids (7)
I believe the answer is:
deludes
'kids' is the definition.
Although both the answer and definition are verbs in their -s form, I cannot see how one could define the other.
'american chaps worn by the spanish' is the wordplay.
'american chaps' becomes 'dudes' (I am not sure about this - if you are sure you should give a lot more credence to this answer).
'worn by' is an insertion indicator (outside letters are worn by those on the inside).
'the spanish' becomes 'el' ('the' in Spanish).
'dudes' placed around 'el' is 'DELUDES'.
Can you help me to learn more?
(Other definitions for deludes that I've seen before include "dupes" , "Tricks" , "Deceives (as to truth)" , "Fools" .)