The Ethereal Guide can only be found in the Dream World during the quest Lunar Diplomacy.
The Ethereal Guide directs one of the tasks the player must complete in the dream section of the quest. He asks the player to do a task called "Where am I?". His portion of the tasks in the Dream World involves the player hopping across small dream puffs. This portion of the quest is similar to the portion in the Underground Pass when players must select a safe route on the grid over the pit.
The Ethereal Guide shows that one must know where they have been to know where they are going. Because the player fails the course if they do not remember the route that is "safe" to take, they must remember and use their knowledge to advance further in the course. While completing the task, the player realises the importance of remembering where they have been.
The Ethereal Guide appears to be wearing a white transparent version of lunar robes.