Talk to the receptionist, and then go upstairs to meet your friends. Talk to them to here Cloud talk about his past in flashbacks. You’ll find yourself in the back of a truck with other Shinra soldiers and Sephiroth. He and Cloud will talk for a while, then you will be attacked by a huuuuuuuuuuuuuuge dragon. Don’t worry if Cloud dies, Sephiroth can kill it in two hits. After the battle, the scene will switch back to Kalm, then return to Nibelhiem. Talk to the guards and then Sephiroth. Go north. When Sephiroth leaves you can talk to the guard and the kid. You can visit Cloud’s house on the right and Tifa’s house next to his (has double doors). Go to her room and Cloud will play a tune on her piano if you choose the bottom option. You need to play this tune when you visit Nibelhiem later to get Tifa’s Level 4 Limit Break Manual.
When you are done looking around go back to the inn. Talk to Sephiroth twice and pick the bottom option. In the morning talk to Sephiroth and you’ll have your picture taken with Sephiroth and Tifa. You’ll then make your way up to the Mt.Nibel reactor. Cross the bridge and talk to Tifa. After falling, go north east into the cave. Keep heading north. You’ll come to a Mako fountain, you will talk here for a bit, then eventually arrive at the Mako Plant. Go up the stairs. Once in the plant, go across the wires and down the chains. Follow Sephiroth into the chamber room. Talk to him and examine the chamber to the left at the bottom. Talk to Sephiroth again to look inside the chamber. After Sephiroth goes craaaaaaaazy and the monster breaks out, the scene will switch back to Kalm. You can choose to save your game or continue. Choose whatever you like and then Cloud will continue.
Back in Nibelhiem, Cloud will enter the mansion. Go up the stairs, and right. Talk to the guard and go through the door in the corner and down the spiral stair way. Go south and right to the library and talk to Sephiroth. Leave after he is done. After Cloud wakes up go back to the library. Talk to Sephiroth and return to the town. Talk to Zangan and enter Cloud’s house. Watch the really cool FMV and you’ll find yourself back in the Mako Plant. Make your way to the chamber room. Examine Tifa to move her out the way then go into the room Sephiroth went into to see another cool FMV. After Cloud challenges Sephiroth, the scene will cut back to Kalm. After you leave the inn, you can go get an Ether in the house next the inn (its behind the door under the stairs) and another Ether in the chest on the second floor of the house next to the previous house (in the cupboard). There’s also a Peacemaker gun in the thrid house along, up the curving stairs to the north. Also in this house, in the cupboard next to the girl on the second floor (go up the other stairs) is a Guard Source. There’s another Ether under the stairs of the house on the right side of the town.
When you’ve got everything exit the town and keep going east until you come across some lighter grass and enter Chocobo Farm.