The Dragon is a fearsome flying unit and is capable of attacking both ground and air units. Unlike the Balloon, the Dragon has both ranged and splash damage, like the Wizard.
Also unlike the Balloon the Dragon does not target a specific Building to attack; he targets whatever is nearest.
A Dragon does short-range splash damage when he attacks. This can only be noticed when used against Clan Castle Troops and Walls.
The purple Dragon icon shown in the barracks is actually a level 2 Dragon. The Dragon changes from green to purple after upgrading, matching its image in the Barracks.