Mist Dragon:
Fight it as you would a normal enemy. Cecil attacks while Kain jumps. However, when the message �Dragon turned into mist� appears, stop attacking AT ONCE! If you hit it while it is in its Mist form, not only will your attacks miss, but also it will counter with Cold Mist, which does a lot more damage than the dragon�s regular attacks. Just Parry or wait until it returns to its dragon form, then resume attacking until it dies.
Once he is dead, continue out of the cave and head east to the town of Mist.