From what I can gather, and this summation may be a bit out of order, but, Princess and Knight Girl left the castle or wherever because the General was assassinated. There was no evidence to help them find the killer, but somehow they gathered some information to lead the Princess and Knight Girl to suspect the Killer came from this current village or at least was hiding out here. They happened to come across MC when he was kicked out of his family's home because someone sent that monster to kill them. Seems everything up to this point was somewhat filler other than the Dragon fight that broke MC's sword since Princess and Knight girl decided to tell MC about the Killer once they got to this village. I believe it was also meant to introduce the concept of the Sacred/Holy Sword that the Hero/Brave Girl fights with.
Either way, the broken sword allowed Princess and Knight Girl to recommend they go to this village since the Princess knew Elf Girl Blacksmith was there and could make a sword for MC. Also, Princess and Knight Girl knew the Killer might be there and after seeing MC's strength, they wanted him to help deal with the Killer. MC agreed. I think here they briefly discuss the Killer might be hiding in the village or in the forest near the village. Either way, when they got to this village, the Fedora Hat dude and Emotionless Loli showed up when MC, Princess, and Knight Girl tried to sell the Dragon scale from the Dragon fight to the Adventurers Guild. They (Fedora Hat Dude and Emotionless Loli) had questions about the Dragon scale because it meant a strong person was around if they could defeat a dragon. Upon hearing the Princess, Knight Girl, and MC's story, Fedora Hat dude concluded they were nothing to worry about. MC, Princess, and Knight Girl go meet Elf Girl Blacksmith, she refuses to make a sword for MC because she's trying to make a sword to avenge her dead mentor who died trying to fight the White Wolf Monster in the forest. When she sees the sword of MC, for some reason she decides to make him three sword. I haven't figured this one out. I suspect the Sword might be made by her mentor or it might've been a sacred sword at once or something. This is implied when she claims she'll make a sword stronger than the sacred sword, but the Holy sword, which I'm assuming is the sacred sword is in the hands of that Hero/Brave Girl they met during the Dragon Arc.
MC, Princess, and Knight Girl spent time going around town asking questions about the Killer. They don't get any good information about it. So MC goes back to Elf Girl Blacksmith to get his sword and she takes I'm in the forest to test it. Elf Girl Blacksmith wants him to try to strike the White Wolf Monster with the sword. The White Wolf Monster is sleeping. MC spend some time killing other Monsters based on his words, but eventually finds the White Wolf Monster or is lead to him by the Elf Girl Blacksmith. He tries to hit the White Wolf Monster with one of the swords she made and it broke just like her mentor's sword broke when she tried to fight the monster and died. Later on, Elf Girl Blacksmith fixes the sword (I think) or makes one of them better and decides to go use it against the White Wolf Monster. Her concept of avenging her mentor is to prove that their sword can hurt the monster, not necessarily kill it. That's when the Monster awakes because it's controlled by Fedora Hat dude.
Hope all of that makes sense.