Monster Village is a lot different by the time the cut-scene is over. Before, where there are pretty houses, today its all rubble. No one is around and it's time for you to find your lost friends. Head into town and see what clues you can find.
Grandpa can tell that you are a little down, and Cylinder mentions that Fan is hysterical lately. He notices that you got a new drill and tries to sell you some drill parts. At this stage, its worth considering either the Alpha Part or the Storm Part. They add further repertoire to your array of attacks. Forward Slash Attack (using Alpha part) takes some practicing though to get the direction perfect.
Talk to Fan and she will tell you that cakes have been disappearing from her store. She has also raised prices! You'll find Poco outside Fan's shop, so talk to him. Poco has been hiding ever since the Phantom attacked Monster Village. Poco will return after talking to you. Talk to Disk and he will tell you more about upgrading items. To do so, you need to collect more "junks" not "Pockles!" Go upstairs at Grandpa's house and you will find Pino next to a plant. Talk to Pino and assure her that the village is now safe, she'll hurry back to the village.
Walk past both shops to the far right and you'll find Puku hiding behind the trashcan. After the conversation, Puku will return to Monster Village and your work here is done... you should also return to Monster Village soon. A cut-scene back at Monster Village will see Puku explain what the Dark Mists are. Basically, they are the result of sadness and worry amongst monsters. Dark Mists will clear if your monster friends become happier. The phantoms are powerful, and these monsters need your help to restore their hope. You are the one chosen to save them.