The Squire's Folly is a book belonging to Craigie Williams, which Engilbjort Williams stole and which appears in Chapter 9: The Ghost.
Hilda & friends mistakenly believed that Engilbjort stole Frida's book, The Legend of Great King Condon, so they challenged Engilbjort for the rights of ownership. It is only when Engilbjort concedes and gives them the book that they realize it is The Squire's Folly.
One definition of "folly" is "lack of good sense or normal prudence and foresight". Since Hilda & co. demonstrated a lack of foresight by failing to ask which book Engilbjort stole, the title of the book is likely a writer's room joke about Hilda & co.'s silly mistake.