In ancient times, the land was inhabited by the Dragon race. They viciously fought each other until the land itself was burned and ruined. When they eventually became aware of the destruction they'd caused, they ceased fighting and decided to resettle throughout the world. Before leaving, they left behind a prophecy stating that when the land was once again in turmoil, it would be reunited by the Golden Lotus King.
Years ago, a local warlord Jun Kun was sought out by the exiled Overlander Regina, a Magitek sorceress. Hoping to use him to gain power quickly, she pledged her allegiance to him. However, any early attempts they made to secure a foothold in the region was crushed by the country's rebellious inhabitants. That changed in the year 3225 when Dr. Ivo Robotnik arrived, making both of them his regional Sub-Bosses and providing them with much-needed supplies to subjugate the kingdom's denizens. By the year 3236, parts of the Dragon Kingdom were under the tyrannical rule of the two, who were now known as the Iron King and Iron Queen, who ruled from their Iron Fortress. After a battle against Sonic the Hedgehog, Miles "Tails" Prower and Monkey Khan, the Iron King and Queen were temporarily defeated and chased off.
The Dragon Kingdom was also home to the various clans which fought one another in the Clan Wars. One of the clans, the Yagyu Ninja, also were notorious for pillaging villages. For over fifty years they pillaged and terrorized the people of Leung Kar. However in 3236, Monkey Khan managed to stop the Yagyu Clan in the act of a theft and chased them off, eventually returning all the loot they had stolen as well as causing their own robot dragon to chase them away.
By 3237 the Dragon Kingdom was conquered by the Eggman Empire and under the rule of the Iron King and Queen yet again, who had then turned their holdings in the region into the Iron Dominion. The Iron Queen claimed that local resistance continued to cause problems for the them over the Eggnet. However, she later took control of Monkey Khan, who had apparently allied himself with these Freedom Fighters, and had him wipe them out.
The next big problem was the ninja clans that had been fighting them as well. Even after Regina and Jun received support from Dr. Robotnik, it only made the four houses fight back even harder once they learned of it. Trying a different tactic, Regina attempted to bribe the Yagyu's leader, the Bride of Rich Nights, into siding with her in order to gain a fighting force. When that failed, Jun Kun murdered Rich Nights, letting Regina take credit in order to make the Yagyu became her personal army. She then sent the Yagyu to aid the other clans in their battles at random while spreading rumors of each other being allied with the Iron Dominion. Fearing their own destruction, the respective brides of the Raiju, Shinobi, and Gossamer Clans swore fealty to the Iron Queen and gave her the title "Bride of Four Houses", ending the Clan Wars. With that, the Dragon Kingdom came under complete control of the Iron Dominion and Regina then set her sights on claiming the heart of the empire when she learned that Dr. Eggman was about to fall.
After the Iron Dominion seized control of New Mobotropolis, Monkey Khan led Princess Sally Acorn, Sonic, and Tails to the Dragon Kingdom as part of a plan to defeat the Iron Dominion. Realizing that the loyalty of the clans to the Iron Queen had to be broken before the threat of the Dominion could truly be ended, the quartet arrived in Stormtop Village to begin seeking out the clans. The Gossamer Clan soon attacked them, capturing everyone but Sonic, who then convinced the Gossamer ninja that he and his teammates were seeking a peaceful meeting with the clan. After successfully negotiating peace with the Bride of Endless Reach, the group were approached by agents of the local Yagyu Lord, who was convinced not only to leave the Dominion but to abandon the clan system entirely. Satisfied that this would leave the Yagyu in chaos and thus minimize the threat they posed to the Dragon Kingdom, Khan and his teammates joined up reluctantly with the mercenary team known as the Destructix. Together the two groups stormed the Iron Fortress to confront the Bride of Conquering Storm, who agreed to leave the Dominion after her champion Lightning Lynx was defeated by Sonic in a duel. While Conquering Storm privately made plans for her clan to seize the Dragon Kingdom for itself, Khan's group was approached by Espio the Chameleon of the Shinobi Clan. The group later returned to New Mobotropolis and defeated the Iron King and Queen, presumably leaving the Dragon Kingdom free of their influence.
The Shinobi Clan
The Raiju Clan
The Yagyu Clan
The Gossamer Clan