Picks up at the end of Arcania, so if you have your save file you can carry it all across. It is a very painless transition and unlike games, such as Mass Effect, every item in your inventory are carried over.
However, this is more likely because of the Expansion-like feel of this game. Overall it is an anti climax to the prior game. There are fewer encounters, those that exist get pretty tired. The Boss battle at the end is almost identical to the boss in ArcaniA.
If you have to get the game to complete the saga, I guess do it. However, there are only a few new enemies, no new powers and you will feel that the expansion really only rounds out the story.
If you were picking this up as a standalone, I don't think you will get the relationships between the characters and thus the story will just feel like a shallow chase to kill a demon that is cursing a kingdom. The greater conflict is lost and the chance to make something epic of that showdown is lost even without the prior story knowledge.