Your lace edging pattern is written at the top (there are 8 rows). So, you CO 5 sts, then work Row 1 of the lace edge pattern. You will have 6 sts. When you get to the last k2tog on Row 2, you have to slip 1 sts from your ruffle onto your left needle so you can do the k2tog (or else you only have 1 st and can't do the k2tog).
You keep doing the pattern, repeating the 8 rows as needed until your lace edge is attached to the ruffle. From what I can see, you use a st from the ruffle on the RS rows.
Hope that clears it up some. I'm better at explaining things I've actually done, so maybe someone else will do better if this isn't clear.