This is a fairly straightforward dungeon that has one nice little surprise in it, Metal Slimes. It's likely that this is your first encounter with these enemies and anyone who has played a Dragon Quest title before knows that they give a lot of experience if you manage to defeat them. However, their defense is top-notch and they will almost always flee before you deal enough damage (they only have 3 HP). Should you be able to down them, each Metal Slime gives a whopping 1,000 experience!
Back to the dungeon, go south on the first screen to enter the second area, where there will be a few splits on the main path. None of these lead to anything, so ignore them and continue straight south to a ladder leading to the next area. The third area is linear, so just continue to the fourth area, where you will find that there's what looks like a split, but the southern path is a short dead end, so continue west.
Keep following the path and you will eventually reach a room with some stairs, where you'll see a short scene with some monsters surrounding a well. Climb the stairs and you'll be in a small room with a hole in the floor. Drop down the hole and walk forward a bit to be thrown into a battle against a Well Wisher. You fought one of these before, although it was optional, but this one seems a bit different. Its physical attack deals around 30 damage, it can throw rocks at your party, dealing around 20 or so damage and it can save up its strength for its next attack. In addition, it knows Crackle (hits one character) and can shout, which if it connects, will make that character skip their next turn.
Upon the Well Wisher's defeat, go up to the big well and use the Dew of Life to purify the waters. This will bring the villagers to their senses and when you regain control, heal up your party, then use the rope to climb back to the village, where you'll be thrown into another fight.
BOSS - Fighting Batboon
This boss is a physical powerhouse, as he knows Oomph, which will double his attack power. You can counter this, somewhat, by casting Buff on all of your party members. He will usually follow up Oomph with Fists of Fury, which deals four hits at random to your entire party, so hopefully one character doesn't bear the brunt of all of the attacks. He also has a normal attack, which does deal a lot of damage, but considering it's a single hit, you might want to actually see this more than the other.
Since the above is pretty much all the boss does, you'll need to keep a close watch on your party's health. Having two people who can do healing here (Midheal is ideal) is a good idea, so hopefully you made someone go through the Priest vocation. Should you have a round where you don't need healing (or not much), then use that chance to use Sap on the Fighting Batboon to make your other characters deal more damage.
With the boss down and the town finally saved, feel free to talk with everyone, but to continue you will need to talk with the mayor in his house. Agree to stay the night and during the next morning, he will mention that the girl at the Ygg tree will want to see you. Before heading out, check out the item shop and make sure you speak with the farmer nearby, who will hand over a Red Fragment . Exit the village and go to the Ygg tree to speak with the girl, who tells you all about the tree and how it will grow into the mighty Yggdrasil in the future. She will also give you a Staff of Salvation , which works similarly to the Salvation Stone when used in battle (its power is equal to Midheal, though, so it's stronger and will likely be used for a good while). That's all you can do here now, so return to the portal and go back to the present.