Cosmo Canyon is Red XIII's home village. Its most distiguishing features is the observatory and windmills. Cosmo Canyon has a lot of shops and a hotel to stay in.
It is impossible to pass Cosmo Canyon, as the buggy will break down if you try to move past it. When you enter the village Red XIII will run past you, and will go off to find his Grandfather in the observatory. After a little bit of exploring, Bugenhagen will ask you to find two friends to take into his observatory where you will learn some more about the nature of the game.
After this he will take you into the locked door, Red XIII has to be in your party at this point, so choose your other character carefully. You now have to follow Bugenhagen through a series of caves, which are full of traps, but also has a couple of valuable items and Materia to be found. They are well worth seeking out.
After you leave Cosmo Canyon, head North to Nibelheim.
Eventually you will have to fight Gi Nattak. He is a lot easier than he seems!
After your little adventure in Space, you need to go and visit Bugenhagen in his observatory.
After your entire team have had their little chat, he will take Cloud up into his Holographic Astrometric area. This is where you will leave the Huge Materia for safe keeping.
Make sure you have already got Bahamut and Neo Bahamut, and then examine the Blue Huge Materia.
Now that you have got the Huge Matiera, you can obtain the Master Materia. This is a single orb that lets you cast all spells.
To get one, you need to take every single Materia in a group (e.g. Magic, Summon) up to Master Level. You then have to touch the required Huge Materia.
Once you have finished here, you have to take Bugenhagen to the Ancient City.