I just got out of the sewers and ended up in Morrowind. I got the dream that old me to go to Hammerfall. I know its west but I've been walking forever and I don't seem to be making any progress. Do I just have to keep going west until I end up there or is there another way I'm supposed to go there?

Shift+M

To get from province to province, city to city, etc. in Arena you have to use fast travel: you can't get there just by walking. This also applies to quest dungeons: you have to fast travel to them; walking won't work.

I always enjoyed exploring the wilderness areas around the Arena towns: using the small boats, exploring the random dungeons, etc., but those areas aren't essential to the game: they're just places to gain loot and experience, and to have fun adventuring.