Just keep all of your monsters at your castle, and kill anything near you. Then retreat again.
When you have 60 - 80 monsters make them all go forward.
Incase they respawn with 100 at once, keep the "Phoenix strike" spell with you to kill them.
Well I got to the part where he says "Theres something new out there, figure out how to kill it."
I looked around the entire place and there is nothing. Glitch?