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Grammarly is simply wrong. "Dragon" here appears to be used as an ordinary noun. There is no reason to capitalize it. The only reason to capitalize "dragon" would be if it was a proper name or part...
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#3: Attribution notice added
Source: https://writers.stackexchange.com/a/19053 License name: CC BY-SA 3.0 License URL: https://creativecommons.org/licenses/by-sa/3.0/
#2: Initial revision
Grammarly is simply wrong. "Dragon" here appears to be used as an ordinary noun. There is no reason to capitalize it. The only reason to capitalize "dragon" would be if it was a proper name or part of a proper name. Like if you were talking about the "Dragon and Unicorn Tavern". Well, or if it happened to be the first word of a sentence. Maybe some special cases. Don't take grammar software too seriously. Take it as a HINT that you MAY have an error, not as a definitive statement. Once just for fun I took a grammar test that my daughter had been given in school, typed it into the computer, and ran a grammar check. Between missing actual errors and incorrectly labeling valid text as containing errors, it got a score of a little over 50% on the test.