Buddy is a black dog you'll find outside the entrance to the Caverns.
If you have Pet Pal and talk to him he will tell you he's sad and misses Emmie, a dog who was taken by the Magisters and turned into a Source Hound.
If you calm him he will dig up a key called Buddy's Key. It opens ??.
You can give him fish to make him happy or you can give him Atusa's leg if you haven't eaten it already, if you are an Elf. If you give him Atusa's leg the dialogue is quite hilarious as he say it smells revolting, eats it, throws it up, eats it again, throws it BACK up and engages in combat with you after saying "I.DON'T.EAT.HUMAN."