I'd like to see a picture with the fabric removed taken up higher on level with the area in question.

Only one window like this? Is there room to slide in some foam board? You can even cut it into pieces. Then take a can of spray foam and fill the gaps. I'd use 2" XPS foam. Since you have to buy a full sheet, you might as well put several layers in, maybe 3 if it fits. Purposely cut the pieces loose fitting so you have room to insert the straw for the spray foam can. If it looks like a mess when you're done, you've done a good job!

I did about the same as Seaborman. I used a combination of foam from 1" through 2" thick.

Sometimes it's easier to cut 1" thick pieces to get into some spaces so I'll do it in layers caulking the edges between layers to insure air tightness. With foam you must make sure all the edges are sealed so warm moist air doesn't get in between the foam and rim joist and using Spray foam or caulking will do the job and I use both.

You shouldn't use fiberglass insulation around the rim joists unless it can completely be sealed inside the cavity to keep inside moist air out to avoid condensation, and nearly impossible to do. Rim joists are the boards around the exterior of the house the walls sit on, and if they rot out it's extremely expensive to repair. Your 100 years old rim joists haven't rotted out because it's not insulated, but if it's insulated wrong it will rot out, so beware.