Shabby gallery embarrassed to include exhibit finally (8)
I believe the answer is:
tattered
'shabby' is the definition.
(synonyms)
'gallery embarrassed to include exhibit finally' is the wordplay.
'gallery' becomes 'tate' (Tate Modern, Tate Britain etc).
'embarrassed' becomes 'red' (someone may blush or go red when embarrassed).
'to include' is an insertion indicator.
'finally' says to take the final letters.
The last letter of 'exhibit' is 't'.
'tate'+'red'='tatered'
'tatered' placed around 't' is 'TATTERED'.
(Other definitions for tattered that I've seen before include "In rags" , "In poor condition" , "Torn into irregular pieces" , "Worn to shreds" , "Ragged and threadbare" .)