Stanza 2 Summary

Get out the microscope, because we’re going through this poem line-by-line.

Banners yellow, glorious, golden,
On its roof did float and flow,

This grand palace had beautiful banners on its roof. Again, our speaker gets kind of carried away with the magic and the excitement of it all. He piles on descriptive terms, embellishing the basic information to give us a richer sense of just how great it was to look at this palace.
Another way he conveys the beauty and glory of the palace is through alliteration. The banners are "glorious, golden" and they "float and flow." Poe loved the sonic effects that you can achieve with words, and this poem is no exception. Check out "Sound Check" for more on his technique.

(This—all this—was in the olden
Time long ago,)

The speaker really wants us to know that this is how the palace used to look. Here he busts into the middle of his description to remind us of that fact. Actually, these lines break into the poem and interrupt it in a bunch of ways.
First, there's the punctuation. The parentheses and the dashes are both ways of setting aside this information, of separating it from the language around it. The dashes indicate a pause in the middle of the line—in fancy poetry terminology we call that a caesura.
Line 12 also breaks up the rhythm of the poem, just like line 6 did in the first stanza. Suddenly we stumble over these three short, little words.
All these techniques help to put the happy palace in a kind of frame, and maybe to prepare us for what's coming later. Check out more on that in "Form and Meter."

And every gentle air that dallied,
In that sweet day,

We get more description here of the happy palace, and the breezes ("air") that blew around it. Notice how thick these lines are with positive words like "gentle" and "sweet" and relaxing words like "dallied" (that just means to move lazily)?
Ah—good times, everybody.

Along the ramparts plumed and pallid,
A winged odor went away.

The "ramparts" of a palace or a castle are the walls that surround and protect the building (like in the Star Spangled Banner: "O'er the ramparts we watched"). These ramparts are pale ("pallid") and have some kind of decoration on them that looks like feathers ("plumed"—that might be a reference to the banners we heard about in line 9).
Oh, and be sure to notice the alliteration in "plumed and pallid."
When the breezes pass along these walls, they come away smelling sweet (a "winged odor"). It's like a scratch-and-sniff palace.