When you reach dungeons level 3, back to town and talk with Odgen. He will talk about Archbishop Lazarus' betrayal, the kidnapping of Prince Albretch and the madness of Kind Leoric. The king sent all the warriors to die with him on the dungeons, it was all premeditated by Lazarus.
He said to you set free the suffering soul of Leoric, so the people of Tristram could have more hope. Go back to the dungeons and find the entrance to his domains at level 3.
There isn't much to say about this place, since the lead will take you to King Leoric's Cursed Squeleton. All the demons on this place are squeletons (archers and captains), they will come on a huge horde, so be careful!
When you reach Leoric's Squeleton, don't try to kill his minions since he will keep resurrecting them. Go directly to Leoric and crumble him to death. Try not let him slash you, 'cause that will make you stop attacking and will keep bringing you closer to him. And he slashes fastly, killing you in a matter of seconds.
If he hits you, drink some potions so you don't die and try to walk far from him. Then, back and continue attacking till he dies. After dead, he will drop his Undead Crown (useful at the beginning), or some magic item if you get unlucky.
If the quest is still on your quest page, simply back to town and talk with Odgen.