The big principle at issue in "The Wife of Bath's Tale" is gentility. Gentility was thought to be a quality of a person that caused him to do noble deeds, keep his promises, and generally behave virtuously. The knight's accusation that the loathly lady is 'lowborn,' implying that she lacks gentility, prompts a response from the lady in which she unearths the true origins of "gentilesse." The question at hand is whether this gentilesse is a quality that naturally inheres in the offspring of a certain class, or whether it results from one's actions. The lady believes the latter, and uses logical, educated arguments to convince the knight of it, too. The upshot of her discussion is that, at the end of it, she's able to reasonably claim that she is gentle and the knight is not. Score one for the loathly lady.
The loathly lady designs her speech about gentility to make the knight feel guilty about the crime he has committed.
The lady's speech about gentility plays on the Middle English word "kynde" in its argument that noble deeds are not necessarily the result of natural qualities or family origins. (Note: Use a Middle English dictionary definition of the word "kynde" to help you build a defense of this thesis.)