Make sure the copy of Inigo the Brave is in his inventory. When you are at a tavern with him, have both of you sit down, and initiate conversation with Inigo. The option for having him read the story should appear when you click on him, and he will happily read it to you. I know this response is super late, but someone else might come along with the same question someday.

Yeah, its pretty simple, you just sit in a chair and then talk to Inigo and ask him to do something. Then tell him to sit down. Then talk to him and the option for him to read the book to you will be availible. Simples