The sealed city of Dharm is the town where Arthur, Curtis, Gloria, Sharon, and Myron grew up. It is located east of the Palace. They've been training at the Battle Simulator, located in the northern east end of town right next to the Elder's house. The Elder has forbid anyone from leaving the town, due to the presence of danger and monsters on the outside. A young Dion and Faye live in this town in the Present World.
Arthur brings Lara to the Elder and ask him to take care of her, and he agrees to. He also mentions that Cronos found something, and suggest that you go over to Elan and talk to him.
In the Future World, Dharm has sunk into the sea. The Ifram Tree mentions that Dharm has been moved to the east island.
Spoilers end here.