The developer didn't compress the text so it was just a matter of using a hex editor and replacing the Japanese text (encoded in ShiftJIS) with English. However, the game would crash whenever I tried to use halfwidth characters (2 halfwidth characters can fit into 1 Japanese character, which would have made for a better translation). So I had to use fullwidth characters, which limited the amount of characters I could use severely and I had to cut about 50% of the text out. I stopped a few scenes into the introduction 'cause I didn't think I could continue with this restraint.
There are two scenes in this video.
1: Partial introduction. I know I didn't translate one of the lines shown in the video. You can find the full introduction of the remix translated on youtube.
2. Town menu and battle commands. "Hurt" is actually called "Attack Magic" in the Japanese version, but because I only had 5 or so characters of space, I Dragon Warrior'd it to "Hurt."
elf didn't compress Dragon Knight II's text too, but they did compress Dragon Knight III's and Dragon Knight 4's (highly recommended!).
Emulator used: Neko Project II.