By terrorizing the nearby village, it has caused food to become scarce. After Rei, Ryu, and Teepo defeat the Nue they discover that it was a mother who was just trying to feed her young, unaware that they had been dead for a long time.
Since this is the first "real" boss battle, it's not very hard. Have Rei use Pilfer until he steals an item and then attack, Ryu attack or heal when neccecary and Teepo cast Flare or, if you have it, Simoon. The battle in the caverns is the same, except Nue begins to use Jolt when low on HP, though it can only use it once. Casting Protect is advised, but not nescecary.
The Nue is based off of the Nue, a legendary Japanese creature that is essentially their answer to the chimera. They are described as having the head of a monkey, the body of a raccoon dog, the legs of a tiger, and a snake as a tail.