The Hermit is a mad man living in a cave in Sentinel Island. He is normally the second NPC you meet on the island. He thinks you want to harm him so he tries to cast some unsuccessful spells at you. After this he will run to the back of his cave.You can talk to him again to find out that he likes to cook and would like a wyvern mother egg to make soup with it. You can find the egg up in the wyvern spire.
Near his cave you can find a friendly Dragon Elf named Vacca. He offers you the quest Ghostbuster. As a reward he will give you a potion which derives the wyvern sense of smell making them think you are one of their own. Use the potion, go to the nest and grab the egg then return to the Hermit. As a reward you will get his bow used by him for hunting wyverns, Mister Shooty. The bow is in the chest at the back of his cave, in a hidden compartment, you will need to mind read Vacca or do the quest involving the wyvern egg to be able to get the bow.
He claims that he served Maxos, the great wizard, who gave him a long life and he thinks his master forgot about him outside the tower.
He sells a great variety of items: weapons, amour, consumables and misc items. He has a wealth of about 4800 gold.
He gives you the quest From Soup To Nuts.
You can mind read him for 700 exp to lower his prices (this will also lead to Ulfmar's axe, found in the mouth of the dragon balista statue near Allan).