On your first visit here, you may be tempted to explore as much as you can above, but there is little reason to other than to discover the extents of the valley. Your primary focus should be surviving and reaching Eruga's Forest all the way to the right. Early on, you will need to climb up a rope to a higher elevation along some towers. In the first tower door, a hermit will tell you about a floating castle that lies above the valley.
In the second door across the way, before you climb back down, a hermit will inform that you cannot continue without the Grappling Hook. While he seems a bit premature in telling you so (you can make it all the way into Eruga's Forest before you will realize that you are stuck without it, but that's not what he's talking about; you're actually at the Tower of Lile, and you need the Grappling Hook to climb up it, which you'll do later), it would be wise to pay attention to him and turn around if for some reason you haven't collected the Grappling Hook from Garloz yet.
You will encounter two kinds of monsters here. The brown bat-like Molgolins are placed in unfortunate but predetermined positions. They are quite slow, and even when they appear to pose a threat, you can usually destroy them before they get too close. The other more common enemy is the Olbis which frequently fly out of the water to attack you. They will appear in large numbers, but you should take your time and defeat as many as you can. It's not a bad idea to try to reach the second health extension before you reach the forest so that you have five hit points. Fighting the Olbis can help you accomplish that.
Before you each the forest, you will have to pass three more towers. You will climb up the rope along the left tower to the screen above. Then you must jump to the small platform on the middle tower. It may appear as though it is too far to safely jump across, but you can in fact make it safely. Trust in your jumping ability and reach the rope back down to the ground and continue on until you reach the door to Eruga's Forest.
Far later in the game, when you have collected every item from the Indora gods, and you have even obtained the Pegasus Flute from the Tower of Garba, you will be ready to return to this valley and explore the mystery at the top of the tower. By using your Grappling Hook, you can continue to ascend up the tower which has the second hermit who warns you about needing the hook. You will face a couple of Molgolins who are, again, situated in places that make them difficult to deal with in tight quarters. Stand your ground and take them out before advancing upward.
Eventually, you will reach the very top of the tower, and you will indeed witness the floating palace off in the distance. Reaching it is another story. If you visit the hermit who lives all the way at the very top, he will only cryptically tell you that you need to meet the five Indora gods in order to reach the castle. Presumably, you have already done this, and if you recall the words of the hermit who provides you with the Pegasus Flute at the top of the Tower of Garba, he tells you to play the flute at the top of the tower. Switch to the subscreen and activate the flute. When you return, you will see a rope leading up to a door that was not previously available. Climb up the rope and pass through the door to reach your final destination: the Sky Castle