I prefer to believe that dragon did (and do exist), along with unicorns, elves, fairies, etc but I definitely don't have a reasonable agrument to support it. I just think life would be too boring if you DIDN'T believe in magic and fantasy creatures. Heck, I spent half of my young childhood looking for the "gremlins" that kept messing up things in our house!
Hey, I was a bored, only child with an overactive imagination!
Honestly though, I do think fantasy creatures have a basis in reality. I read somewhere that the unicorn is believed to have been based on a one horned goat species that is found in the mountains somewhere in europe (don't ask me where). It was so rare to see them that they became a myth. And don't they think the legend of mermaids came from sailors seeing manatees?