The Loong Scales let you unlock the battle against the Red Loong. To do it, you must backtrack to Outside the Forest Shrine. Here, head left through a path, and you'll eventually reach a waterfall.
Then go inside to find the Loong Scales. Now, using the key item in your inventory, go to Chapter 1—Outside the Forest Keeper’s Shrine to find the Red Loong. Once that entity is defeated ...