It is an especially large and grand multi-story structure lit by torches on the inside, and it is complete with a veritable inn and four observation towers. A room at the basement level contains a library and Babi's dedicated team of scholars and researchers, and is where Kraden grew up and used to work prior to his moving to Vale. Also at the basement level is an underground pathway to the arenas that are the site of the Colosso competitions, named the Colosseum Tunnel.
Normally, nobody outside of Babi's staff and soldiers are allowed into his own palace, but during Colosso, visitors are free to enter. Some of the rooms in the palace are available to Colosso entrants to stay the night in. Even before Isaac is entered into Colosso by Babi, his party can use the palace as a free Inn apparently because they look like warriors.
Babi Palace is the first place the player can meet Sheba, who is being held in a room on the upper levels. The opportunity to meet her is small, as once Colosso is complete, Babi returns her to Lalivero (though she is kidnapped by Saturos' party when the two meet in Suhalla Desert and never completes the journey).
After first arriving in Tolbi, if the player has not completed Altmiller Cave first, then proceeding up to and into Babi Palace will trigger two cutscenes, one where the player is approached and queried as to whether they have seen Babai and the second where they overhear Iodem explaining that Babi has in fact been missing for at least a whole night. He proceeds to tell the guards that Babi often heads off on his own, literally vanishing into Altmiller Cave for small periods of time. However, this time he had not returned. This serves as a clue to the player as to what to do next, ie; to head to Altmiller Cave and complete the dungeon therein.
After completing said dungeon, Babi will enter Isaac into Colosso, who, upon his victory (regardless of whether the player actually wins or not, Isaac will be declared the winner) is deemed to be a worthy and reliable warrior. Babi tasks his newfound soldier with the goal of finding the ancient civilisation, Lemuria, which holds more of the Mystic Draught, the key to prolonging his already abnormally long life. To this end, Babi sends Isaac's party to Babi Lighthouse in the south, in order for the Adepts to commission his Lemurian Ship to locate the mysterious isle. Also, as he has now acquired trustworthy help, he deems it unnecessary to continue to hold Sheba captive in his palace, and sends her, along with an armed guard, back to Lalivero- a trip that will place the unsuspecting Jupiter Adept straight into the hands of Saturos and Menardi.