Did dragons actually exist at one time? Or are they fabricated legends based on real dinosaurs?
Imagine yourself as a farmer about 1200 years ago in Europe. You can't read and the only history you are aware of are from the tales that travelers tell about their journeys in foreign lands. You learned how to farm and plant crops from your parents. One day you are digging a new well and while digging, you unearth a huge bone. The bone is longer and larger than anything you have seen before. You keep digging and then you find a skull of a large beast. You have never seen anything like it before. Your imagination runs wild. You do not know that the bones are fossilized and have been there for millions of years. You assume the bones and skull are a recent death. You then tell your neighbors and the story spreads. Soon someone comes to look at the bones and they declare that they are from a fire breathing dragon.
So the myth now spreads and develops. Someone puts together an imaginative tale of how the "dragon" died. Other people find more bones in the same general area and now the tale has grown to a family of dragons in the area. Any missing livestock are now blamed on the dragons in the area. The same thing with fires that mysteriously start in barns (even though they are probably from spontaneous combustion of improperly cured hay).
You can see how legends like dragons could come about. Each culture around the world has their own stories of dragons. For more fascinating stories about dragons and how each culture has treated them, read "A Little History of Dragons."
My daughter is a fan of myths and fantasy. She has a wonderful book called Dragonology which she found on sale several years ago. It is a blend of myth, legend and pure fantasy based on historical finds.
So next time someone talks about a mythical creature, think to yourself that it probably has some basis in fact.