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Background
You'll receive this quest from a traveling merchant in
Croakwood (#1).
Walkthrough
When you talk to the merchant, he'll ask you to lead him out of the forest, and when you tell him that you can't do that, he'll settle for you escorting him to the Romany camp (#2).
The easiest way to complete this quest is to kill everything in the forest first, and then escort the merchant. No new enemies will spawn to attack him, and so you'll just have to walk across the map with him following you. Leading the merchant into battle isn't much more difficult; the merchant will simply duck his head whenever you run into enemies, and enemies will mostly ignore him in favor of you and Katerina. However, if you do get into trouble, remember that the Arcane Healing trick will heal you and all of your allies, including the merchant.
After leading the merchant to the Romany camp, you'll need to talk to him there. This will complete the quest and earn you a random "yellow" item, a skill point, 200 gp, and 150 xp. The merchant will also join the gypsies in the camp and start acting as a merchant there. He'll have a little bit of everything in his stock.