How do I fix movement in headset
The compression ring is a wedge.  There will always be space and movement here, until the headset is assembled and adjusted.

It looks like you're missing a part. There should be another hoop with a wedge shape and a split. It's the split ring on the upper left in the image below. This part is what grips the steerer tube tight and will eliminate the clonking you're experiencing.





If you are confident that all the parts are there, and assembled in the correct order, then you have 3 likely reasons for movement:  


The first is that there is damage to the bearing cartridges.  This can show as movement when adjusted correctly, although usually on a headset it will fail first by being rough or crunchy feeling.
Secondly, there may be movement between the frame and the headset cup, which can mean that the frame is in need of replacement.  This can't be fixed via adjustment.  There are ways to attempt a fix, but it is best looked at by a qualified mechanic, first.
Last, there may be no movement in the headset, but you could be feeling movement in the brakes, depending on how you are checking for movement.  Try checking for movement by standing the bike on the rear wheel, turning the handlebar all the way to the left or right, and checking for movement with your hand around the headset.  That way if it is in the headset, you will feel it directly.


I hope that is helpful.