This song is half of a story about Sigurd from Norse Mythology. In the story, Sigurd is attempting to slay the dragon Fafnir. In part 1, he makes a powerful sword with a blacksmith, and then journeys to Fafnir's den.

More information about the original story if you're interested: (Some small details may be inaccurate, the gist is the same)

Fafnir was a... well, fairly normal person who lived with his 2 brothers and his father. His brother, who could transform into any form he wanted, commonly transformed into an otter. Seeing this, Loki, with Odin, killed the otter, not knowing it was a person. Otter's father (His name was actually otter) is furious about this, and threatens Loki and Odin. They make a deal, and Otter's father says that if they can get enough gold to cover Otter's body, he will let them go. Loki finds a dwarf with lots of gold, and steals all of it by outsmarting him. But before he can fully get away, the dwarf puts a curse on all of the gold for whoever inherits it.

Fafnir, seeing all the gold, takes it and runs away from home. He hides, being incredibly happy with his new found wealth. Overtime he becomes corrupt, and eventually transforms into a dragon. For hundred's of years, warriors attempt to slay Fafnir, but they all fail, as he is incredibly powerful. The final brother, Regin, becomes a blacksmith, and trains a person named Sigurd. Sigurd isn't aware of this, but Regin isn't really training him to become a good blacksmith, but it will all help him become a better warrior. He hopes that one day, Sigurd will finally be the one to put an end to Fafnir.

Regin eventually helps Sigurd make a powerful sword, and they travel to Fafnir's den. Regin tells Sigurd to dig a hole underneath Fafnir's den, basically for a sneak attack. This is where part 1 leaves off.