Ok, you'll need to beat the Celadon City gym leader AND Giovanni & Team Rocket in the Game Corner hideout.
The silph scope is needed to advance through. With the silph scope climb the Pokemon Tower in Lavender Town. Ghosts CAN be identified now. There are 7 floors to go up, and on the second floor is a battle with Gary, fifth floor a healing zone, and the seventh a battle with Jesse and James, Team Rocket members, and a ghost pokemon blocking the way.
After you clear this, you'll be able to rescue Mr. Fuji which then you can go to his home in Lavender town and he'll give you the Poke Flute. Or he'll give it to you right when you rescue him.
On your way to Saffron City now!
I beat Yellow and Red version. And I also own a guide.