As you approach the Ancient Castle, you're treated to a cutscene about its history. A battle was fought here 1,000 years ago, during the War of the Magi. Further, legend has it that Odin battled a sorcerer here.
Encounters in the Ancient Castle
The Outside of the Ancient Castle contains a mixture of Encounters you've just seen with Goblins and Figalizes and the Barb-e, Samurai, Suriander combination from Cyan's Soul. Barb-es and Samurai are both human and vulnerable to Poison, and you'll want to make sure to defeat the Samurai quickly before it can use Fatal.
Inside the Ancient Castle, you'll find several new enemies. Boxed Sets can appear alone, in a group of four, or in sets of two accompanying two Figalizes. Boxed Sets have a triple-damage Mirror Orb special that they may use in place of a normal attack. A single Boxed Set on the battle field can use Cold Dust to inflict Freeze or a fairly powerful Meteo to damage the party. They have high Mag.Def and auto-Reflect like the Monsters of the Cave to the Ancient Castle, so stick to physical attacks.
Lethal Wpns bombard the party with Diffuser, Launcher, and Missile. These attacks tend to reduce HP greatly, but only Diffuser can actually finish someone off. Lethal Wpn have no special Mag.Def but are protected by Reflect and have high physical Defense. A combination of Defense-ignoring physical attacks and non-Reflectable magic attacks will cut through their 9,200 HP. They are vulnerable to Thunder and Water—if Strago came along to learn CleanSweep, Lethal Wpns are a good target to use it on.
Exploring the Ancient Castle
While there is an obvious main entrance to the Entry Hall, there are three other doorways in the walls, leading to rooms on either side of the main door. You'll find the Punisher in the East Room, while the chest in the West Cells contains the Offering and is guarded by KatanaSoul.
KatanaSoul is a fierce opponent that can use a wide variety of attacks. It can throw all three of the Elemental skeans as well as using Gale Cut, Shock Wave, and Blow Fish. The skeans are the most dangerous of these attacks, dealing hundreds of damage to each Character. KatanaSoul ocassionally counters some attacks, and will use SlayerEdge to Wound an opponent after being hit with Fight six times. Similarly, it will Throw an Imperial or Ashura for massive damage, followed by GP Rain (which reduces your GP reward for the battle), after you've used Magic or Lores three times. Finally, after some time has passed KatanaSoul will power up, giving himself the Image and Reflect Statuses.
KatanaSoul has a high Mag.Def, but your stronger spells should still be useful. Physical attacks are the most reliable. He is human and vulnerable to Poison. With 37,620 HP, it will be difficult to defeat KatanaSoul without allowing him to power up or triggering his dramatic counters. Special attacks work well if you brought Characters that can use them for heavy damage.
The Offering is a powerful Relic, causing the user to attack four times at half damage per hit. The net result is double damage from Fight, at the cost of being able to choose specific targets.
When you enter the Throne Room, you can examine the statue of Odin to obtain the Odin Esper. There's plenty more Treasure to be found before you're done here, though. The left-side doorway east of the throne leads to a Treasure Room containing the Blizzard Orb for Umaro and a Gold Hairpin. The east doorway lead to the other side of the West Cells where you fought KatanaSoul, but there's nothing new to find there. You'll find an X-Ether in the bucket in the Library to the west. You'll also be able to read the queen's diary, where she reveals she fell in love with Odin
Reasonably speaking, that should be it. But no, there is one more major secret here. If you climb onto the queen's throne (the one on the right) and take five steps down (you'll be standing on the lowest level of steps) then press , you'll hear something open. Return to the Library where you'll find a brand new staircase. There are no random Encounters in the Secret Basement, but you will see another of the eight legendary dragons wandering around. Approach it to engage in battle.
The Blue Drgn
This is the Water-Elemental legendary dragon, and as such it absorbs Water and is vulnerable to Thunder. It will open the battle with CleanSweep and continue to use it approximately every 40 seconds. Its primary attack sequence is a mix of basic attacks and Acid Rain, which poses little threat. It can also counter attacks with an attack of its own. Haste seems to annoy the Blue Drgn, and it will respond to your characters having it by Slowing itself and then using Rippler to swap Statuses.
Like some of the other legendary dragons, the Blue Drgn gets serious when it gets low on HP. After you've done 10,516 damage, it will replace Acid Rain with Aqua Rake and Flash Rain, both of which are significantly more powerful. Still, the Blue Drgn lacks any specifically deadly attacks, and with its low HP (for a legendary dragon) and Thunder weakness, it should be an easy battle for any party powerful enough to reach it at all. The Blue Drgn drops the Scimitar, a powerful Weapon that randomly cuts Monsters in half. This is supposed to be Odin's Weapon Zantetsuken, which explains the effect.
Raiden vs. Odin
If you speak to the statue of the queen in the Secret Basement, the Odin Esper will be transformed into Raiden. Raiden is superior to Odin in most respects—its True Edge summon is more accurate (though also costs more MP) than Odin's Atom Edge, and Quick is uniquely taught by Raiden while Odin's Meteor is also taught (and at 10 times the learning rate) by Crusader. However, Odin offers a +1 bonus to Speed at level up, an Attribute that cannot be permanently increased in any other way. If you spend some time leveling with Odin, the effects can be dramatic. Raiden offers +2 Vigor, which is useful but also available from Bismark.
You're not supposed to know about the Secret Basement the first time you enter the Ancient Castle anyway, so you may consider keeping Odin for a while. Even so, you will eventually want Raiden in order to learn Quick. On the other hand, boosting Characters' Speed is hardly necessary to completing even the toughest challenges FFVI has to offer. But it something to consider before committing to "upgrading" Odin. It may also be worthwhile to learn Meteor now, before heading to Kefka's Tower.
You cannot Warp out of the Ancient Castle, so you'll have to walk all the way back to Figaro Castle and have them take it back to the Kohlingen Area to reach the Falcon.