The dragon, sometimes referred to as #peranth, is one of the invincible enemies in Dark Castle. He only appears in level (Shield 2) so far, though may show up more in Return to Dark Castle. All you ever seen of him is his head, as he moves on and off screen, breathing fire.
The Dragon cannot be killed, nor can he be permanently got rid of, however there are ways around him.
The first and most obvious way, is to use the Water Bucket placed above the Dragon, this stuns him, and making your way down and running past him when he's stunned.
The other way to get passed him, is by timing it right, and running past him when he goes off screen.
For splashing the Dragon with water you get 150 Points.
As the dragon splashing spot is safe from the vultures attacks, it is a classical points farming spot.