Before Kalm
You may want to explore outside of Kalm for awhile and kill some enemies to get expirence. That's understandable. You've been in midgar for a long time. Just watch out for the monsters that steal items - you'll want to kill them quickly before they run off with your items, otherwise they will be gone forever.
Inside Kalm - The flashback
Go to the inn and Cloud will tell his story, all about him and the great Sephiroth. This does take a long time, but is very linear, so there is nothing at all to it.
Afterwards
When you are done, go downstairs. Whaddya know? At this point, you'll get the PHS, which allows you to call your other party members from a save point or at the world map.
Feel free to pick up items and supplies in town. You'll also want to search around for the Peacemaker gun, which is inside a chest, even thouh you are unable to use it just yet.
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