In the universe of this story, nine life-bearing worlds are connected and share common genetic backgrounds. While each world has distinct flora and fauna, and intelligence, a common thread exists between all.
Early, in response to spider-kin intrusion, the aelfs experimented with genetic manipulation to create dragonkin using genetic material from one of the worlds - a high gravity world called "Field". Volunteers from indigent societies were originally given implants giving them a series of capabilities - in the short term flight, speed and enhanced defensive/attack skills. Short term implants could be reversed. However, where implants were not reversed, the volunteers became just as dangerous as the spiderkin, developing additional capabilities, such as shape change. Unpredictable and hostile, these groups together on their own worlds and elsewhere. Each of the indigent as a specific form - which can be mapped against a dragon "color" described in aelf song. In the story, human is mapped against black dragon. Aelves, wraiths and wolves are respectively mapped against blue, red and yellow dragons. At the time of the story, only one blue dragon exists.
The aelf Teathyme sings -
Fey orange dragons
Sweep low and fast above the ground
Ready for battle
Cruel green dragons
Drop from high on prey unwary
Holding in castles
Plagued red dragons
Burn and ruin village and forest
Whole cities flatten
One blue dragon
Travels fast the web and timelines
Blurring past with talon
Like everyone else who has looked at shape changing, it comes with lots of problems. In this story, in terms of shape change, the implant only creates wings to start with - and I assume these can fold back into skin and occupying a very small size. Sufficient to be overlooked on a quick examination. As an implant remains in place for decades, other shape changes take hold. At this point, provided the dragon-kin has sufficient rest, it has the ability to shape change.
Blue Dragon: Old Dragon Lady
The Blue Dragon is an aelf - with the dangerous power to change time lines. To preclude use of this power, she has been tethered, and blocked from attaining flight and time shift. She is guarded but not excluded from company. Her capacity to escape and act of the time line is very limited - if she negates the incidence of her escape, she is returned to captivity. However, she is retained as a fail-safe, for use by the Aelfs in the event that if the present time line comes under stress, she might be able to save them.
The Blue Dragon does not quite see it this way, always looking for ways to escape. Adopting a human form, she spends a lot of time in rest. As a healer, she puts her captivity to some use, practicing her art, and taking an active interest in the outside world.
Yellow Dragon: Finch
Finch is a yellow dragon, part of a band gradually spreading from New Zealand to Australia. A young dragon, she is from a small stock of the wolf-like Crest from the planet Home genetically modified about 10 years ago - created, unsuccessfully, to resist spider-kin advances on the Northern veldt-lands.
Finch dies catastrophically just after the start of the novel Dragon Eye - although this is not apparent until late in the story - her death creates a turf war between Yellow and Red Dragons.
Red Dragon: Laughlan
Laughlan is a red dragon, part of a band gradually moving from New Zealand to Australia and pressure is placed on home territory, and for all the other advantages that New Zealanders move to Australia (surf, social security and health). These were originally genetically modified about 100 years ago - being Wraiths (from Farsigh at Gliese 710) - created to resist spider-kin advances on the sky-towers of that location. Prior to writing the novel Catalyst - a prequel to this story - I imagined that about 50 years ago they moved through the area of instability at Christchurch and very recently have moved to Australia (population pressure). To mesh with Catalyst, I date incursion sometime after 1975 :)
Laughlin annexes the Yellow Dragon Finches' territory when he realizes she has died.