Two thousand years ago, the Ruined Village was the home to all of the people currently residing in the Village, with the exceptions of the Hero and Norschtalen.
The day Larkeicus discovered a crystal was in the forest, he attacked the Villagers. Eventually, Sherlotta was the only one left alive, and she fled to the forest. Larkeicus followed and captured Sherlotta by the Crystal Core. Abandoning the crystal he took Sherlotta with him, leaving but a lifeless village behind him. The ghosts of the villagers and the immortal Sherlotta lived there, until Sherlotta found the Hero abandoned in the forest. They built a new village for the child, while the old village was left to rot.
Spoilers end here.
The Ruined Village can be accessed only after completing the events of the Graveyard, and then proceeding through the new paths that have opened up in the Forest in back of the new Village.
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