Some yarn that is making small piece of cloth (6)
I believe the answer is:
hankie
'small piece of cloth' is the definition.
'some yarn that is' is the wordplay.
'some yarn' becomes 'hank' (a hank is an amount of yarn).
'that is' becomes 'ie' (synonyms).
'hank'+'ie'='HANKIE'
'making' acts as a link.
(Other definitions for hankie that I've seen before include "absorbent cloth" , "Cloth for the nose, in short" , "For the sniffles, in short" , "type of rag" , "An informal nose-wiper" .)