After you tell Zelda what happened in the Sanctuary, she and Impa ask you to visit Sahasrahla in Kakariko Village.
Explore the Village
Just north of the village, there is a fortune teller. You can pay the fortune teller for a hint about what you are supposed to do next. When you first go in, the fortune teller gives you the Hint Glasses, which allow you to see Hint Ghosts in certain locations. You can pay a Hint Ghost one Play Coin to get a hint about what to do in that location. You can earn Play Coins by going to the 3DS home screen, closing the 3DS, and walking around. The 3DS earns 1 Play Coin for every 100 steps you take.
In the village, you will find a Weather Vane where you can save.
West of there, you find a merchant. You can buy a bottle from him for 100 Rupees. This item is very useful, so I recommend getting one if you have enough rupees.
There is an item shop west of that. You can buy a shield there for 50 rupees. The shield is automatically equipped, and you have to hold R to defend yourself.
South of that, you find an old man who will set up StreetPass battles for you. If you StreetPass with other Link Between Worlds players, your character will be sent as Shadow Link, which other players can have battles with. If you tell the old man to activate StreetPass for this game, he'll plant an apple tree in the garden near your house. In addition, he says that if you get StreetPass tags, he will put up a sign in the field in front of him.
In the cave north of the item shop, there is a chest that contains a red rupee.
On the east side of town, there is a house with a treasure chest on the front. This is Fortune's Choice. It's a game that costs 50 rupees to play, where you have to open one of two treasure chests. If you open the correct one, you get 100 rupees.
West of the Fortune's Choice house, there is a house with a bee on the front. This is the home of the Bee Guy, who will give you a net that you can use to catch bees. The bee guy asks you to catch bees with the net and bring the bees to him. He'll reward you for the bees you bring. If you can find a Golden Bee and bring it to him, he gives you the Bee Badge, which causes bees to be friendly to you instead of stinging you. The Bee Guy will still reward you for the bees that you catch and bring to him.
South of there, you find the Milk Bar, where if you have an empty bottle, you can buy some Lon Lon Milk. You can also pay the musicians at the top of the room to play some music.
You can go south of town to find the Cucco Farm, where you can play the Cucco Game. The goal is to avoid letting any of the cuccos fly into you during the time limit.
Go southeast from there, then cut the bushes that are in an arrow shape. Go north past those bushes to find Gulley in a clearing. Animals surround him, but the animals run away whenever anyone else comes near.
There is a stone building in the north end of town, and you can see a chest behind the bars. But there are wooden boxes blocking what looks like the door of the cell, so you can't do anything here for now.
Now go into the long wooden house in the north part of town. Use the door on the right: the one on the left is locked. You find Sahasrahla dozing and muttering in his sleep, then he wakes up. When you tell him what happened, he asks if you know the legends of the Seven Sages and the hero who saved Hyrule. If you want to hear it, say Tell me.
Sahasrahla believes that Yuga turned Seres into a painting because he wants to gather the descendants of the Seven Sages in order to release Ganon from imprisonment. Sahasrahla sent his disciple Osfala to the Eastern Palace to investigate reports of a strange man there, but now Sahasrahla realizes that since Osfala is a descendant of the Seven Sages as well, Yuga will try to kidnap Osfala too.
Sahasrahla tells you to go warn Osfala. He marks the location of the Eastern Palace on your map. Go that way now.
Detour to the Witch's House
If you go east past the graveyard, you'll see a witch fly overhead. Continue east, then go south, cross the bridge to the east, then go north. You'll find the Witch's House to the east. Use the weather vane here to have it added to your map.
In the Witch's House, you can buy potions that will help you on your quest, but you need an empty bottle in order to purchase them.
Continue to the Eastern Palace
Go west, then south until you reach an area with stone mounds and some Octoroks running around. From that area, go east. You can find a cave entrance to the east where there is a fairy fountain, where the fairy will heal your wounds. Back outside, use the north exit. Keep going north and you'll discover that the path is blocked and there are signs that say Ravio has set up an item shop south of the castle... using your house.
You can find a red rupee east of here, but the Armos Statues will wake up when you go there, making it difficult to get away unharmed.
A little farther east, you find a cave entrance, but there's nothing that you can do there for now.
Deal with Ravio
Since your path is blocked, you should go back to your house and ask Ravio what's going on. When you talk to him, he asks you what symbol you saw on the stone pedestals around the blockade in the Eastern Palace area. Choose the correct symbol: the bow and arrow. Ravio lends you the bow and arrow for free.
When you go outside, an energy bar is added to the bottom left of the screen. When you use Ravio's items, the energy bar depletes. The energy bar replenishes over time. This means that you don't need to look around for more arrows to keep using your bow. You can just keep using the bow until the energy runs out, then wait for it to recharge.
Now go back to the blockade in the Eastern Palace. Walk up the stairs onto the pedestal, then turn left. Use the bow to shoot the crystal switch. Now turn right and use the bow to hit the other crystal switch. The door will open.
Go north through the door. There is a little house down in the pit, but you can't do anything in there right now. Instead, go northwest and up the stairs. Go east from there and get rid of the armos knights. Keep following the path to reach a chest that contains a red rupee.
Go to the northeastern part of this area. You find Osfala standing in front of the entrance to the Eastern Palace. He's confident that he is safe, because he holds the Sand Rod. Instead of going back to Sahasrahla, Osfala goes into the Eastern Palace.
You should go in and make sure nothing happens to Osfala. Save at the weather vane next to the palace, then go into the Eastern Palace.