The conversation between these two occurs in Act 2, scene 2, at the point that Shylock's servant, Launcelot, has decided to leave his service and work for Bassanio. Shylock has been quite stingy and has treated him badly, whilst Bassanio has offered him greater benefits. Just as he is about to leave, he encounters his father, Launcelot Gobbo, who is looking for Shylock and wishes to present him a gift.
GOBBO
Master young man, you, I pray you, which is the way
to master Jew's?
LAUNCELOT
[Aside] O heavens, this is my true-begotten father!
who, being more than sand-blind, high-gravel blind,
knows me not: I will try confusions with him.
Since his father is practically blind, Launcelot decides to play a trick on him and confuse him even further. He knows that his father does not recognize him and thinks that he is someone else. This tomfoolery is what informs the theme since Launcelot presents himself as someone he is not and his father, who knows no better, believes him.
When his father asks him for directions to Shylock's home, he provides very confusing directions. His father then asks him if he knows whether his son, which is of course him, is still living with Shylock. The younger Launcelot then repeatedly asks Gobbo if he is speaking of the young 'Master Launcelot.' He here intentionally uses the term 'master' to confuse his father even more, for he is not a master but a servant.
Gobbo is loathe to use the term 'Master' in reference to his son. Launcelot uses the term 'raise the waters' in an aside, suggesting that he will raise the level of Gobbo's confusion. He then insists on referring to himself as 'Master' and Gobbo, misunderstanding him, for he does not know he is actually talking to his son, but a respected citizen who is a master, replies:
Your worship's friend and Launcelot, sir.
Gobbo thinks that the person he is speaking to is a friend of Shylock's and therefore uses the phrase 'Your worship's friend.' He makes it pertinently clear that he is talking about Shylock and plain, ordinary Launcelot, the one who is not a master but a servant.
The mischievous Launcelot continues teasing his father and insists on using the term 'Master,' whilst his father insists that he is referring to someone else. This confusing repartee brings about much humor and would probably leave the audience laughing about the comical irony.
Launcelot, then cruelly, tells his father that his son has passed away, which is obviously a great shock to the old man, for he cries out:
Marry, God forbid! the boy was the very staff of my
age, my very prop.
Launcelot uses the term 'father' whilst speaking to Gobbo. The word is used as a pun here for it was common to refer to an old man as 'father' which was a term of respect. Gobbo does not realise, of coure, that it is his own son asking him if he knows him and says that, because of his semi-blindness, he does not. Launcelot has had enough of fooling around and tells Gobbo that he is actually his son and that he requires his blessing.
Gobbo is not convinced and tells Launcelot to stand up (he is, in all probability kneeling either in front or to the side of his father, with his back to him) for he is sure that he cannot be his son. Gobbo is somewhat convinced when Launcelot mentions his mother's name (Margery).
Gobbo reaches out to his son and feels his long hair, wrongly believing that he is touching Launcelot's beard. He exclaims his surprise that his son has changed so much and compares his beard to a horse's tail. The little facade has finally ended and he asks Launcelot if he and Shylock are getting along for he has brought Shylock a gift.
Launcelot tells Gobbo that he and Shylock were getting along well but that he has decided, for his own good, to run away from Shylock's service and that he will not rest until he has covered an ample distance away from the Jew. He complains that Shylock has starved him and that he can easily count all of his ribs. He tells his father to present the gift to Bassanio who will be his new master and that he will provide him with a new uniform. Launcelot fears that he will become like a Jew himself if he should continue serving Shylock.