Return to the Elder's house and he'll open a path for you to leave the forest quickly. Your next destination is Mount Crenel to meet Melari. We'll do some side things first.
Back out in the woods, go through the log and into the little orangish house above. The guy inside will give you a bomb bag with bombs inside! Now leave and use the stump to grow again. Up above is a gravestone type thing. Check it and it will shatter, revealing some kind of symbol on the ground. It's of no use to us at the moment, but it will be later. Continue on the way, and your path will be blocked by cracked rocks. Use a bomb to get rid of them.
You'll see a mushroom first thing, so go ahead and use it. Don't bother shrinking at the portal right now, the guy in the mushroom house above doesn't do anything useful yet. Just bomb the rocks out of the way and exit north.
Use a bomb on the funky looking wall and go in for 20 Mysterious Shells. Next take the stairs to the left and avoid the peahats or use the Gust Jar to draw them in and spit them out. Then exit north. Go ahead and bomb the rocks above, then head through the exit to the west.
You can rest in your house if you need to. Otherwise head north to Hyrule Town.
When you enter town, the Hurdy-Gurdy Man (I hate that name) will give you a Kinstones Bag, tell you about Kinstones, and give you a Kinstone piece.
He explains that if you see a thought bubble over someone's head when you face them, it means they have a Kinstone piece to fuse (you can fuse with some objects, in special cases). If you press L in front of that person or object, you can try to fuse Kinstones with them -- in other words, you can see if you have the missing half to that person's Kinstone piece.
(Note that you have to wait a second for the thought bubble to completely appear over the person's head.)
When you press L in front of such a person/object you'll see a screen with one half of a Kinstone in the center. On the left will be any Kinstone pieces you have. If you have a matching piece (matched by color and shape), use it and it will fuse with the other person's piece and become a complete Kinstone.
The Kinstone will turn into a spark and will travel to some place in Hyrule, and something will happen. Sometimes a chest will appear somewhere, sometimes a path will be opened, a person might get an idea causing something in the game to change, or a special monster may even appear. Other stuff can happen too.
NOTE: Now that you have a Kinstones Bag, you will want to cut lots of grass and bushes! You can get green Kinstone pieces this way, enabling you to fuse Kinstones with a good number of people early on in the game. Green pieces are the most common since they can be found anywhere. Blue and red pieces can only be obtained in special ways, most often in chests (some of which appear via other fusions). There are also very rare gold pieces that are used only for special purposes and are only found at special points in the game.
Most of the first 22 fusions occur in Hyrule Town. The first 22 take place with random people at random times. The first 22 fusion rewards come from a set list. It appears that at least one of the 22 must take place on Mt. Crenel and possibly in the Minish Woods. You're more likely to do the last ones on Mt. Crenel because you'll be getting lots of the red and blue Kinstone pieces you need in the dungeon there.
Note also that since you can talk to animals when Minish-sized, you may be able to fuse Kinstones with animals once you can shrink in Hyrule Town. However, there's only one set animal fusion in the game. You may find animals to fuse with when you're working on the first 22, but since animal fusions are difficult to achieve because you have to shrink, you probably won't do any.
If you haven't already, press L in front of the Hurdy-Gurdy man and fuse the piece he gave you with his (it's a guaranteed match). It will open a hole in a tree in South Hyrule Field.
Go now to that tree in South Hyrule Field (you can check its location on the closeup map) to get the piece of heart inside. While you're there, find the gravestone just north of Link's house and check it to reveal another symbol on the ground.
If you have the patience you can go around South Hyrule Field and the Eastern Hills now and cut grass to find some green Kinstone pieces. There will be quite a few opportunities for Kinstone Fusion in Hyrule town, and your goal before a certain event that occurs before reaching Castor Wilds is to fuse exactly 22 Kinstone pieces with random people. You have 21 more to go and you might want to keep track using the checklist in the Kinstone Fusion section. Most of the first 22 require green pieces. If you don't get all 22 before the aforementioned event (which I'll reveal later), the remaining 78 fusions may occur in different places than those listed below.
Back in town, now you can explore. Here are some of the things you should do in Hyrule Town.
You need to do the following to be able to progress: go into the log house just to the left of the entrance and you enter Swiftblade's dojo. Ask to train, and you learn your first sword technique, the Spin Attack. You have to perform a spin attack yourself to finish the lesson. Every time you learn a technique from Swiftblade or his brothers (or in one case, ancestor), you get a Tiger Scroll you can read to review the technique. Swiftblade will tell you he can't teach you a new technique until you come back with a new sword (the mended Picori Blade obviously).
If you can afford it, buy the bigger wallet from Stockwell's shop. It lets you carry up to 300 rupees. You should probably go around Hyrule cutting grass for rupees so you can get the wallet before going much further. Later you should come back and get the boomerang when you have the cash. If you can buy it now you might as well, it helps in the next dungeon but it isn't necessary. You can recoup the rupees spent with some of the chests that appear with the first 22 Kinstone fusions.
Go into Mayor Hagen's house (north and to the right of the town bell) and exit through the east door. Go down the ladder and get the chest for a red Kinstone piece. Fuse it with Mayor Hagen's.
Also, be sure to check the gravestone near the north exit to reveal another weird symbol. They will be helpful later.
You can go to Anju who's standing in front of her cucco pen. Her cuccos have gotten out and she wants you to help her catch them. You can do this multiple times and each round is harder than the last. If you want all of the game's pieces of heart, you have to keep playing and beat the hardest round for a piece of heart. However, you can't beat the last few rounds equipped as you are now. Before the piece of heart, your prizes for winning are mysterious shells and rupees. After a certain number of rounds you only get rupees.
Some tips for playing:
Go around fusing Kinstones, and cutting grass for more Kinstones, to start getting the first 22 fusions out of the way. You may run into a fusion that requires the blue S-curve piece, and one that requires the red triangular wedge, and you probably won't be able to get such pieces until after you proceed. Also, as mentioned previously, it appears at least one of the first 22 fusions must take place with someone on Mt. Crenel or with a Minish in the Minish Woods, and you'll probably be doing them on Mt. Crenel.
When you're ready, make sure you have at least 20 rupees and go to the soldier by the northwest exit and talk to him. He'll have you do the spin attack then let you pass. Go through.
Nearby you see a ladder, so head on down it. There's a block to the left that you can't move (yet), but there's a rock wall to the right you can bomb, so do it. Deflect the nut of the Business Scrub and you get your first empty bottle. Go back outside, and now head west over a short bridge, and exit west to the next area.
First thing, go to the water's edge and use your bottle to fill it with water. Then climb the leftmost vine for 20 rupees. Go back down. If you want you can bomb the wall, inside is a Business Scrub who just tells you to talk to the Business Scrub in Trilby Highlands (the one who gave you the bottle). This Scrub might have a Kinstone piece to fuse. Go back out and use your water on the sprout in the ground. Climb up. Follow the path, watching for falling rocks near the climbing wall. Try not to let the Tektites land on you, and hit them when they're on the ground. The grey things on the ground are spiky and will hurt you if you touch them. They can be sucked up by the Gust Jar.
Just past the climing wall you'll see a bombable wall, in it are fairies and 15 rupees. You can catch a fairy in your bottle (if you die it will revive you) but you'll need that bottle for more water, so don't put a fairy in it yet.
Continue on the way, and after walking down, head right. There's a bit of wall you can reach between a couple pieces of fence, bomb it and it opens. Beat the red Chuchus inside (or go around them), and head up the ladder. Above you'll see a shrinking portal in a rock, but before using it be sure to bomb the cracked rock to the right. When you've done that, shrink and head to the Minish path to the right below the green water. Walk all the way up beating monsters (or ignoring them), watching for falling rocks, then at the end put some of the green water in your bottle. Now return to the shrinking portal and grow again. Go left and jump off the ledge between the two pieces of fence.
Continue west and you'll see a wall you can bomb by a couple whirlwinds. If you're in need of bombs go through the door further west and get the Business Scrub to sell you more (it may have a Kinstone to fuse). Back at the cave you opened, go in and kill the Keese, then use the mushroom to get across. Go up the stairs.
You can use the Gust Jar on these monsters to pull off their masks and make them vulnerable, or you can just attack them from behind. Make your way to the door to the outside.
Beat the red Chuchu and jump into the whirlwind. Use the control pad to float over to the other whirlwind, then land on the ledge to the left (you can hit R to stop floating). Go all the way left and up to a new area. Bomb the wall between the two tree stumps. Inside, bomb the three rocks. The chest on the left has a blue Kinstone piece, the chest on the right is 50 rupees, and above is a piece of heart.
Go back to the last area and go up the ladder to the right.
When you reach a Minish path with two tiny flying enemies above it, beat the enemies. Clear away all of the dust to reveal a shrinking portal and a crack in the ground. Inside the crack is a chest with a red Kinstone piece inside, as well as a Minish who tells you that blue sprouts will grow with normal water but green sprouts need Mt. Crenel mineral water.
Before growing to normal size, go right from the crack to a vine leading to a small door. Inside this cave, navigate the maze, defeating the flying Pestos, until you reach a chest with a blue Kinstone piece inside. Go back outside.
If you didn't beat the red flying enemies above the Minish path before you'll have to grow and do it now, then shrink again. Go into the Minish path here and beat the Pestos near the beginning. DON'T pour your mineral water on the giant sprout, it won't work. You need to lift the sprout with R and carry it out of the Minish path, and drop it in the hole in the ground outside to the right. Then grow to normal size, go up to the sprout, and use the mineral water on it to make it grow. Climb up.
First go left and up the ladder. To the right of the climbing wall above is a wall with two pieces of rock near it. You can bomb the wall between the rocks. Go in. You can catch a fairy in your bottle now. Get the piece of heart and exit.
Go back down the ladder and head all the way right fighting monsters. When you get to a wooden bridge go up it and bomb the wall and go into the cave. Beat the red Chuchus in the middle and get the chest for a blue Kinstone piece. Then go up the stairs. You can bomb the black Chuchus to get rid of them, or keep trying to hit them with your sword until they stop turning spiky. Bomb the rightmost cracked rock, then push up the rightmost block, then the topmost block. Exit the cave.
Use the whirlwinds to get to the ledge to the left. Go up the ladder to the next area. Head to the far right and bomb the wall to find a Business Scrub who will sell you the Grip Ring for 40 rupees (you need it so collect rupees if you don't have enough). Go back out and climb down the wall to the right (if you climb up instead of down there's a cave where you can't do anything yet).
Before using the mushroom get rid of the rocks behind it, then use it and launch across to the other side. You're back where you were, so don't bother going into the cave since there's nothing to do there. Continue left using the whirlwinds to get to the other ledge. Keep going left, and jump down from the ledge at the far end. Continue left (the cave you see is where you got the piece of heart, there are fairies here if you need them) and climb up the rock wall, careful not to get hit by rocks.
Up in the next screen, go all the way right and up a little to a ledge with a wall you can bomb. Go inside and throw a bomb into the fountain (drop the bomb then pick it back up with R, and throw it with R). When the fairy asks you the question, answer "Neither" and you will get a larger bomb bag that holds 30. If you're low on hearts you can exit and go back in and throw in another bomb and she'll heal you.
Back outside climb all the way up to the next screen. You can climb down the ladder to the left if you want, there's a cave where the Crenel Hermit lives, and he might have a Kinstone piece to fuse, and after fusing he may have another to fuse right after. (He counts as one of the first 22). He doesn't have very useful advice however, so you can skip him. Go back up to the top of the mountain.
Getting the monsters out of the way, use the mushroom to the right to launch to the ledge to the east. It will start raining. Shrink at the portal, then take the Minish path below, careful not to get hit by any raindrops. Outside, get back to normal size. To the left push a small boulder left into the hole next to it. Then go right and push this boulder across the last one, up and into the hole near the first shrinking portal. Push the third boulder out of the way and climb down the ladder.
In the cave, suck the masks off the monsters to make them vulnerable and beat them, then go down and left. Push the top block left, then push the next bottom block to the left. Push the next bottom block left, then the one above you up. Before moving on, there's a block way below you that you want to push down. Now go around and you'll see two blocks, one above the other. Push the bottom of the two right. Now where there's a big clump of blocks, with a row of four (if you pushed one of them down earlier), push the leftmost one down. There should now be a row of three with one block above it, push that top block to the right, then the one below you down. Finally push the one to your left left, and now you can exit the cave below. Go into the door to the right.
Before using the mushroom here you have to use the Gust Jar to get rid of the pots in the way across from it. Once they're gone, use the mushroom to get across. Take the stairs down. If you need bombs, push the left and right pink blocks up and the middle one to the side, then break the pots for bombs. Stand on the piece of bridge and drop a bomb and pick it up and throw it with R. When it explodes on the switch go across the new bridge. One of the pots here may contain 20 rupees. Exit the cave below.
In the next cave, push the boulder into the hole, then push the totem up and go down the stairs. Push the bottom-most block left and the one above it up. Then to the left where there are two blocks in a column, push the top one left. In the chest is a blue Kinstone piece.
Outside, shrink and enter the Minish path. Get any enemies out of your way and you'll reach Melari's Mines.
As you make your way through, check on the Minish around to see if they have any Kinstone pieces to fuse.
Go to the end and talk to the big guy, Melari. You'll give him the broken Picori blade and he and his apprentices will start to work on it. He'll tell you to exit west and go to the mine for the next element, so talk to the Minish blocking the west door and exit.
Grow back to normal size, and check the gravestone to reveal yet another weird symbol. Now go north to the Cave of Flames.
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