.. Can I save the Deacon?

Yes, if you want to. If you do nothing but waffle around, eventually the demon will take him, and maybe that's appropriate. But there is a way to get the demon to leave and send the Deacon on his way.

Talk to the demon and to the Deacon about every possible option. You now know that he can't move on while he still holds onto his "sins," whatever they are.

We now need to make one more leap of intuition through the notebook.

There are only two ideas in there: "Deacon's sins?" and "The Deacon's flask." Combine those two ideas.

Now talk to the Deacon again and tell him to drop the flask. He's reluctant, but will do so eventually. But that's not enough.

You now need to destroy that flask. You don't have a lot of tools to work with; your inventory is empty. What is there in this plane of existence that you could use?

One of the stones in the surface you're standing on is a different color, a light grey.

Pick up the cobblestone, then click on the flask and pick, "Smash the flask with the cobblestone."