After getting the moldy cheese from the dungeon, you can use it to lure the mouse out of its hole and catch it. You then use it to feed Merlin, who follows you thereafter. He plays a role while you are battling Mordred's Robot in the end.
In Binary Bard's dream, the mouse was recreated as a slave just like Merlin; similar in a larger version with a red color scheme instead of blue. It would pop in and out of holes and grab you to try and take you away, just like the Merlin in Binary Bard's dream. But if you freeze time at the right moment, you can use him to jump above the barrier in your way.