The Forest Castle is full of Amazons, who at present are fighting with the Elves for control over the forest.
If you talk to the Amazons on the second floor, you'll meet Midori, one of the 10 party members you can recruit.
If you talk to her right now, she'll say she's too busy to join you; however, if you talk to her a second time, she'll ask if you want to fight her. If you say yes, then after you beat her she'll join your party.
Note: She'll only join your party if Lufa hasn't already joined.
There's not much else to do here, except to check out the Item Shop.
When you're done in the Elven Village and the Forest Castle, you'll want to go back to the Antarctic Plateau and talk to the Fire Spirit. The Fire Spirit will give you Pixie Matches, which you'll need in Light and Dark Cave, which now is your next destination.