First of all, the villagers are allowed to get hurt. Just as long as you make sure none of them perish. If one dies, then the red meter at the top of the screen goes back a bit.
Set party tactics to "spread". This allows the rest of your party to target a different enemy than the one you're fighting.
The villagers follow a set path. In the first part of the route (until they enter the cave) just keep in front of them, take out whatever comes your way and listen for them shouting "help" which may be an indication they're under attack, but usually is because you're fighting an enemy rather close to them.
Wait for them to reach the tunnel, and then rush into the tunnel and take out the serpent. Ensure you're the first one out again and simply watch out for any respawned enemies.
Now comes the hard part. After the gorge, a couple of mages spawned on all sides. Those mages are what likely will do one of your villagers in. So when the villagers are close to the gorge, rush through and first take out those mages. With a little luck your party will stay close to the villagers and take out those amigos, fish and other attackers. Once the mages are finished, it's just a happy little walk to the checkpoint, arm in arm with Faina :)