The small crystal seed is an item given to the player by King Narnode in the Tree Gnome Stronghold as a reward for completing The Eyes of Glouphrie quest. The seed can be enchanted into a crystal saw by using it on the singing bowl in Brimstail's cave in the south-west area of the Gnome Stronghold.
If the player loses the seed or the saw, they can speak to Brimstail to obtain another one. If you have the seed, then you will see the "Hello, just wanted a chat." chat option. Otherwise the player should check that their bank does not already hold a crystal seed.