You're now in robot city of sorts. The locals are, surprisingly, friendly. You can use a shop here (nothing special), regenerate your health in the "inn" and activate a teleport. Just by the entrance there's a chest with Generalist Heart. To the right side there's a Rebuilding Garage. Inside you'll find a Barrier Magic Heart and a droid who'll upgrade your Medicine.
To continue your adventure, enter the main building in the central part of the village. Talk to the droid there and approach the computer. After more scenes you can go through a door to the right of the main square. There are two small rooms surrounding this hall: in Control Room you'll find Light Crystal (a droid here can regenerate your HP) and in Maintenance Room - Broken Eternal Engine. Get back to the village and enter the "town hall". Go through the door to the left and go along the corridor until you reach the basement. Go through the gates and get ready for a boss fight.
Boss - Blazing Kirin
It's quite obvious that you have to use Water against such an opponent, isn't it?
This is a simple level - just go forth at all times, killing Kelolons and collecting items. Kelolons are easy to eliminate and quite valuable experience-wise. It's good to train on them. At the end of the level you'll see a junction. There's Toripo to the south, but let's go north first. There's a huge hall with lots of Kelolons in it, as well as a dragon. The latter is a formidable opponent, but you should manage to deal with it.
Boss - Moody Dragon
Don't use magic against it, but stick to physical blows. Monitor your health and you should have no problems with winning. If you can't beat him - just remember that you don't actually have to do it for now (dragons are part of a sub-quest that's available on Disc 3).