The sleep walking scene is another of those 90s anime tropes that are still present on xenoblade 2... it has been called by people the horny xenoblade game for a reason. Well, for a bunch of reasons.

The stars under the area name is the development of the region. As you do side quests, merc missions, buy and sell itens and even talk with people who has new dialog (the dialog balloon with a start in their head) the development of the region will grow, this makes shops have new itens to sell, prices to go down and even give you new merc missions.

So you probably didn't catch this because its a bit of rare dialogue but I believe Vandamn was once a prince of Uraya and his child passed away a while back so that's why he takes a bit of a shine to Rex.

Some of the side quests in this game have very strong rewards. Oh, and every blade has at least one side quest of its own... well, the blades that are not generic. Those with cool pictures. Those are pretty important to unlock all their powers. To be honest, the difference in power between normal blades and the unique blades is so huge that seems like a waste to use the generic ones. Using chips on them and such... none of those will end up in your final teams. Well, if you are at least remotely lucky.

I don't know if you've noticed, but you should use some core chips on the rare blades (weapon modification). This makes them better

There is no reason to not open core crystals. You have a limited space for blades but you can delete common blades to make space for more and using them to do merc missions will raise your merc level and give you more slots for blades. They also aren't a rare item, there are monsters you can farm to get common, rare and legendary core crystals to open at your heart's content. Also raising your merc level will allow you at some point to do up to 3 missions at the same time.

You should probably progress a bit further in the game first, but I saw that you started the Tranquility side quest it's one of the best quests in the game so might want to check it out at some point.

Do stutter attack if you want to build up arts faster and make epic combos in short time. Just flick the right stick moment the sword hit the enemies and keep at it. Best to use in early gameplay and to understand the combat and combo routes. You will topple and smash enemies and finish them with a 4th level combo arts 😊 . Combat and arts will build much faster later on so its no need to use stutter step later.

Morag starts a pretty black and white character but she is actually quite interesting. A lot of people were saying she was representation for certain minorities but it's never made explicit in game (this is Nintendo after all). It's like what happened with J. K. Rowling and the way she brought representation. She left it ambiguous so nobody would get angry and you were able to see whatever you wanted to see. I find that attitude quite absurd so I never... well, "gave it points" for that. But for some non binary communities, Morag was important for a time.