You wake up on the shores of a distant land, and a fisherman called Devon talks to you. You should get to know him, as he is a very important character. If you choose the right options or talk to him again, he will direct you to Bentic the scholar.
When you say goodbye, Devon invites you to take his things. Make sure you take the bedroll (double-click it to roll it, and take it with you), and you can optionally also take his food. He will also mention that there appears to be trouble on the docks, so that seems to be the next thing to check out.
Go west until you come to a wooden staircase, going up to the docks. In the barrels there, you will find a dagger, a keyring (if you have the patch), and a scroll about the Skull of Quakes (screenshot / transcript) which you will encounter during your pilgrimage to the Zealan Shrine. Equip the dagger as your first weapon (until you find something better), and also take the keyring to help organise the various keys you will come across during the course of the game.
If you go north to the gates of Tenebrae, the guard will tell you that the gates are closed and will remain so until the execution takes place. Therefore, go south at the docks and watch the execution.
You are powerless to intervene as the execution unfolds. At Lady Mordea's bidding, Shaana (the executioner) decapitates a man named Toran, whose head falls into the sea and is eaten by a minion of the lurker. Most people leave, except for Rhian (Toran's wife, who remains sobbing at his side) and Tarna (a guard). Tarna asks you some questions but then leaves you free to go.
On the eastern part of the Docks area, you can pick up a few useful items.
Where the eastern shoreline meets the walls of Tenebrae, you'll find a fire gem on a skeleton.
You'll also come across a patch of adventurers' mushrooms, recognisable from their yellow colour and green spots. Take a few. Do not confuse them with the poisonous mushrooms on the west side of the Docks, which have red spots and will deduct hit points instead.
Finally, there is a small box hidden behind a tree along the walls of Tenebrae. This contains two potions, and a key which opens a nearby chest. Add the key to your keyring (assuming you have the patch). The chest is trapped and will explode when you open it, but inside you'll find a helmet (hidden under a skull) and a skeleton with five death disks.
Go to the Tenebrae gates, north of the docks. Answer the guard's questions and enter.
You emerge in Central Tenebrae, with the palace of the Tempest (the ruler of Tenebrae) a short walk to your north. Get on the roof of the palace (by either climbing from the door of the palace, or using a staircase inside), and in the middle you will find a Recall Pad. This is a grey square that rises and starts pulsating as you approach it. By activating a Recall Pad, you are able to teleport to it later when you have the Recall Item, making travel much easier.
Optionally, you can steal equipment from the guard towers north and south of the palace. If you find the doors locked, you can break in by climbing on the bridge connecting them. There is also a patch of adventurer's mushrooms just outside the east wing of the palace.
Head towards one of gates east of the palace, and you will end up in East Tenebrae. You will find the library in the northwest part of town. The various books inside will give you information about various topics, ranging from the history of Pagan to some of the magical weapons you will encounter later, including Protector, Deceiver and Bone Crusher.
Find Bentic, the scholar and librarian. He wears a green shirt, and you can find him either upstairs, or downstairs in the west part of the library. Ask him about Tenebrae and about leaving Pagan, and he will tell you to seek either Mythran or the Necromancer. He will also give you directions to the Plateau, where Mythran lives: there is a cave north of Tenebrae that leads there.
You can spend some time exploring Tenebrae if you wish, although it is not necessary. We will visit some of the locations and people later as the story unfolds.
You have already seen Central Tenebrae, which is dominated by the palace of Lady Mordea. There is not much more to do there at this point, but we will come back later.
East Tenebrae is where the rich folk live. You've already visited Bentic at the library, but you can also meet:
There are also some unoccupied houses you can break into by climbing onto the ceiling, including a house on a lake.
The poorer folk live in West Tenebrae, including:
Aside from some empty houses, in West Tenebrae you'll also find an arena with a troll in it, as well as a haunted house in the northern part. Korick tells you that an old man died in a fire there, and we'll visit this house later.
Taking the north gate from Central Tenebrae, you end up in the Herdsman's Valley, home to torax farmers Gwillim and Corinth. There isn't much to do here, so follow the path north as it curves westwards to a cave. Sneak past the troll that roams in this area, and enter the cave. You are on your way to the Plateau.
Note that there is another cave in the northern part of this area, recognisable from the heaps of wood at its entrance. You can optionally visit this place later as part of the Ghost Quest.