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This is quite simple and quite limited.
For making a dynamic cloth you should have a separate geometry cloth mesh. Apply PhysX cloth property object to it (can be simple drag'n'drop), then in your physics solver properties switch to PhysX solver instead of ODE. You can tweak several options of your cloth behavoiur in the cloth property object. As for the cloth constraint, on this forum there was already a question about that - just make penetration with some rigid body.
I was recording a video about baking cloth simulation - http://youtu.be/UoMAfqWSDBE?list=PLBXuSGpNk6u9nfAC4xoznkwi1qe9uKp65
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