Here's a more detailed explanation from the Planetdivinity website:
Solution: You might run into a little boy near the Archer's Guild. He will tell you that a gang of brutal thieves entered the house of his parents and are holding them hostage in the bedroom. A full frontal attack is not supposed to work out well. Turns out the kid is right. As you move to the east you will come across a single house and if you try to enter through the front door, the thugs will kill the kid's parents. There are, however, two back doors. Use your "ALT" key to locate them. You need a key to open one of the doors. Walk west towards the Archer's Guild and keep holding down that "ALT" key. Find the key and walk back to the house. Now open the door to the kitchen with the key you found. Pick up the key that can be found in the kitchen. It will open the other back door which leads to the bedroom where the parents are held hostage. Release the parents and kill the thugs. Then head on over to the Archer's guild and talk to the kid and his parents once more. They'll give you a key that opens one of the chests in the house.
If you are stuck on other quests, you can try going to this link:Planetdivinity Walkthrough