These lines are examples of metaphors - a figure of speech that equates two things for the purposes of comparison or symbolism, without the two being literally the same. The towel on the washing line is not literally a matador's cape, but the poem gives us the image that it is moving in the same way, thanks to the wind.
The movement in the wind of each piece of clothing pegged on the washing line is being compared to a similar action taken by a similar item.
The red towel is fluttering aside in the same way a bullfighter's red cape is twirled aside - olé is used in Spain by the crowds to signify approval of the bullfighter.
The skirt is being kicked up in the same way a cancan dancer holds her skirt up.
The shirt is jumping up and down by one sleeve like a monkey holding onto a branch with one hand.
The handkerchief is waving like someone waving their hanky to say goodbye/cheerio.