Barkeeper
They say that the elven seer Faylen has
a magic staff that can reveal and dispel
demonic illusions.
I'm confused and stuck and I don't know what to do.
I understand. Then you'll really have to play the game very hard, as the plot gets more and more complex, especially when it gets to elements of Japanese mythology.
Anyway, after the cutscenes, try to "talk" to the characters who are still available in this location and understand what they're saying - they usually retell the information from the cutscene in a shorter form. Alternatively, take screenshots of these phrases and use Google Translate for them (there's a function for translating text in pictures).
And only then leave the location.