How should I finish this area?
I only walk there in circles.

This is probably super late (I played this on Steam), but in case you're still interested:

From what I recall, this is one of those levels/areas where the game is meant to confuse you, but the fairies will give you very slight hints towards where you should be going. A good rule of thumb is seeing the scenery around you change when you are moving in the right direction/way. Eventually the game should let you reach the city.

In the worst case scenario, try reviewing character dialogue for hints. Good luck! Hopefully you finished it already.