FFVII can be very vague at times. Personally I like it - answers aren't handed out on silver platters, but I can see how it'd be frustrating (it annoyed me a lot, first time I played it).

The 'Boss' isn't in the main part of the Desert Prison... you need to go out into the desert itself, then head to the right. But only after you've been into that shack and had a chat with Barret. You can't progress until you've seen that scene, and Barret's re-joined the party.