Before you do anything else - go find Claw in the room on the first floor of the castle, and pay the 10,000 Gold to recruit him into your party.
Now that you have the Spirit Tear you need to go back to the Empire and give it to the Chief. He'll tell you to take it to the Professor in the basement, who will then tell you to see the Chief for your reward. Talk to the Chief again and he'll let all the people go, and then ask you to help the Professor with his experiment.
So, go back to the basement, talk to the Professor again - and his experiment robot has gone haywire! And you need to defeat it.
Battle Contraption is nasty. If you have Tink well-equipped, put her in your party and use Gigavolt, and have Bruce, Blont and Linn (or Zilva) attack.
Battle Contraption uses a lot of Bombs, which could potentially annihilate your entire party, but if your lucky most of the attacks will be denied.
Anyway, after the battle, go talk to the Chief again. This time he asks you to see the researchers (also in the basement). But the researchers just say they want to summon a hero from another land... Fortunately, if you talk to the Chief again, he mentions that the elves in the forest are supposed to be proficient at summoning.
So, now it's off the the Elven Village, which is on the continent in the southeast of the World Map.