The Failed Champion is the dream version of the Fallen Knight, the first Boss you fight.
Return to the boss room in the Forgotten Crossroads and jump up to where the boss was, before you broke through the floor.
You will find the maggot there and you can hit it with your dreamnail.
In the dream the bosses patterns arent very different from his normal version.
As this is a dream you can use your fragile charms without them breaking on death, so use "Fragile Heart" and "Fragile Strength" to make things easier for you.
Also level up your nail as much as you can before and you should be fine!