I cleared Freedom Islands after Demonis and all fights (except the heros) were easy or very easy. And I also had some trouble in Demonis, a few deadly fights and so on. So I guess the Islands are meant to be explored beforehand, to help you level up a bit. Same goes for the main continent, seems to me it should be cleared before Demonis as well.
As for Merlassar that's a higher level area if I remember correctly, so you can explore before Demonis but I wouldn't start any fights
