As you save two Sea People from a giant Squid and go to their village with them in Dave The Diver, the ruler will ask for your help to find the reason for the constant earthquakes. The first step before you can help him is to gain the trust of Sea People villagers.
This won't be an easy task since you'll have to do a ton of difficult quests for them. Most of these quests will have you find a specific item, and one of them will be Linchen's pet squid Selgio. Here's how you can find the Shining Jellyfish for it.
Where To Find The Shining Jellyfish
Linchen will mention that the squid got lost once before because it followed a Shining Jellyfish out of the village. She'll then ask you to find this fish as it'll probably lead you to the squid. To do that, simply exit the Sea People village from the same place where you first entered. If you're on the boat, it's recommended to use the mirror to get to the village first.
Once you're outside, keep heading to the left until you reach a giant hole above you. Your camera will automatically focus on the Jellyfish as you reach this hole, and the game will ask you to follow it. Don't worry about the fish being fast as it'll stop if it gets too far from you.
Eventually, you'll reach a place where you can get on the flashlight marker and use it to look into the hole. Here, you can control the light to look around for the squid. It'll move two times when you find it, so you'll have to find it a total of three times. Simply move your flashlight to the following positions: bottom-right - top-left - top-right.
After finding it for the third time, you can place its favorite food on the plate and grab it with the net that you use to grab small fish. Take the pet back to Linchen to finish the quest.