It is based on an ancient kingdom according to the legend. However, it is closer to being related to a lava refinery than a palace. It also holds the Ifrit Golem, an evil fire djinn who wishes to burn the world away. The Evil Foundry is the home of the huge robotic djinns that resemble mini-Ifrit Golems. These require Sonic to use a Homing Attack on their heads to defeat them. Other hazards include lots & lots of spikes, spinning blades that block corridors, swinging spiked doors and the extremely well-known hazards: lava pits. Sonic can cross the lava pits by using the Homing Attacking at cranes.
When Sonic first encounters the Ifrit, he finds it immune to his attacks. Just as the Ifrit is about to attack him, Sonic uses Shahra's power and performs a Time Break to escape. He later returns after obtaining the Water World Ring, and uses its power to defeat the golem. After defeating the Ifrit Golem, Sonic gets the Red World Ring.
In Paragraph 2, the Diehard Challenge, as you start the level, do a homing attack into the tank the Golem’s holding, then attack its head, and then attack the magic carpet. Brake for a few seconds after getting onto the pathway, and you'll see Big on a torch lamp on the ceiling.
When you are able to spot the Golem, jump onto the cylinder and brake for a few seconds. You'll see Big the Cat sitting on the edge of a pit of lava in Paragraph 8.
Noticeably, the mission to get into the heart of the foundry and the mission to escape in 3 minutes are exact opposites of each other.