If you follow the western coast south towards Elsopea, you will come to the city of Helladi. Go in, and in the tower in the centre of the city is the city's mayor. Talk to him about Karadith and his sword. He will say that you will be allowed to recover it, under the condition that you first get him two power crystals, from the cities of Ast and Doorkannen. Leave the city and follow the west coast south (Ast is on the west coast of the eastern peninsula). Eventually, you will come to Ast. The crystal is in the city tower, in the centre of the town. Keep following the eastern coast, and you will come to Doorkannen.
The crystal is again in the centre of the town. Return to Helladi with the crystals, and give them to the mayor. He will inform you that the tomb of Kadarith is now open. The tomb is slighly east of the central city tower. Go in, and pick up all the energy crystals you find there. Now drop the two jet crystals on top of the statue of the black hero, the amethyst crystals on top of the statueof the purple hero, rubies on top of red hero, emeralds on top of green and sapphires on top of blue (order is not important). Karadith will awaken, and challenge one of your party to single hand to hand combat. Slay him, and you will be rewarded with two potent weapons: Spirit Sword and Karadith's Sword (the only weapon capable fo slaying Alkat). Now you're ready to close the Daemonsgate. Go to Tan-Eldorith, and step through the Daemonsgate (which is on top of the central city tower).
Once through the Deamonsgate, you will be in the Daemon dimension. Immediately use the Ornate Bottle (the bottle with Alathon in it). This will trigger an explosion of the Daemonsgate. You will also receive a Golden Master Key. Now you must head north east till you hit the giant citadel of Alkat. Enter it and use the Golden Master Key to unlock the door. The general idea of the citadel is to go around, and find bosses which carry Master Keys of different colors to open successive doors of the palace. However, this last level is VERY BADLY DESIGNED! As a result there are many stupid bugs on this level that will stop your party from advancing.
For instance, the Brown Master Key opens a door, but for some stupid reason, you can't go through the door! Or when walking through the elemental rooms, the designers put a rock right in front of a door to the Fire Room so you can't get through! I have determined which byte of the save game stores your party's east west coordinates, so use this to circumvent any obstructing doors that won't open, etc. Here is what you do: using your handy-dandy Norton Diskedit or any other hex editor search out the bytes at the offsets (in hex) 27, 28 and 2B, 2C these two pairs should hold the same values. You should change each pair to the same value. Let's say, your bytes at 27, 28 are FE 03 then to move a few steps to the left (and past some irksome door) you will edit them about 6 less to make F8 03.
If you want to move to the right, you just add 6. Pretty simple, eh? You can experiment on your own to find how much you need to add or subtract. Now, you must find a staircase up (It is past the six elemental rooms). Once you move a level up, go to the golden room in the north east corner of the level. Therein you will find Alkat. He will attack you, and boy, he is tough. Remember the only weapon that can slay him is Karadith's Sword. Once you kill him, the game ends.