The Cave to the East
Once you enter Happy Happy Village, you are able to move to the next "Your Sanctuary" location, Lilluput Steps. However, you should rescue Paula first, in order to help train her and to allow a better chance of clearing the sanctuary. To the east of Happy Happy Village is a cave. Enter it.
Paula is only level 1 right now, and so she needs a lot of training before she can be effective. When you enter the cave, the first enemy you'll usually see is a little mole called a "Mole Playing Rough." If you do not see this enemy, exit and re-enter. Fight this same enemy six times by exiting and re-entering the cave, allowing Paula to reach level 8 (it might be a good idea to train her up even further than that). Now, Paula should be able to handle the enemies a little better.
Beware of the Mighty Bears that hang out in the cave. The enemies have only physical attacks and can easily kill Paula. Take them out quickly using PSI Special if you have to (heal up your PP at the butterfly spot) or just avoid them altogether.
Continue further into the cave and take the first branch down to eventually find a Great Charm. Equip it on Paula and head back the way you came. Head to the right until you come across a Croissant and then head back and take the path down. Follow this path around and you'll come across a butterfly spot. Walk so that the spot is off and screen, and then back to it again for an infinite supply of butterflies to heal your PP.
When you get to the next split, the path to the north will take you to the same destination as the other, but you'll grab a PSI Caramel along the way. Shortly after, you'll come across a shiny spot and the next "Your Sanctuary" boss.
With the Mole defeated and the next melody recorded, head back to Happy Happy Village. Remember to fight all the enemies on the way as you should be able to gain the initiative by hitting them from behind. This will build Paula's levels up a bit more, helping you out greatly in the long run.
Head back through Peaceful Rest Valley and toward Twoson again. Remember that broken bridge? It's been repaired, so you'll have an easier time making it through the Valley. Stay away from the those exploding trees because they can still kill Ness or Paula. If Paula falls unconscious, you will need to revive her at a hospital before you can proceed to Threed.
Back at Twoson
With Paula, make your first stop at Polestar Preschool. Paula's father will allow her to accompany Ness on his journey! Her mother will give you a Hand-aid which will restore your HP fully, so save it for later. As you leave, you will be asked to head to Burglin Park to visit Everdred. There he will give you a Wad of Bills, worth $10,000. Too bad you can't go spend that money on yourself!
Head over to the Runaway Five where you will receive a Backstage Pass! Enter the theater and present the pass to enter. In the main theater, speak with the girl wandering outside the backstage door to meet the Runaway Five band, where you can talk to the group about their financial problems. The concert will start as soon as you exit. After watching the concert, go talk to the manager found left of the main entrance. Offer him the $10,000 (if you are in front of the desk he'll ask to come closer, so walk around next to him) and he'll let the Runaway Five go free.
The Runaway Five offer you a ride to Threed! Now you can get past those darn ghosts that barred your way before. Make sure you are completely ready to move on because once you go to Threed, it'll be awhile before you can come back. Stock up on any items you may need, like Teddy Bears and enter the bus for your ride.