You get the dictionary from an orphan girl in the slums of the Royal Capital. In order to get it from her, she wants "Any book on Elves" you can find. The book in question is located in a shop, also in the Royal Capital, near the main markets. It's not bought at a counter, but lying around in the store, itself. Look for a shining spot.
1) Look for a book lying around a shop in the main market area of the Royal Capital (Doesn't cost any money)
2) Trade the book you found to an orphan girl in the slums of the Royal Capital for the Elvish Dictionary
3) Go to the Elf in the forest West of the Royal Capital (with the bees). She's located near a statue of the Goddess
*BONUS* Once she's living in your mansion, she'll eventually want you to get her some mushrooms or something for her cravings. Somewhere East of the Royal Capital, there's a place you can land the boat and explore. Inside this little zone is an Elf that says you can't go any further, but looking around the area (another shiny spot) you'll find the mushrooms you want. Return to the Elf in your mansion and present your prize