The "dragon lady" is one of several stereotypes about Asian women. Picture a woman in a tight, slit-to-there cheongsam, long fingernails, holding a long cigarette, gleaming red hair, dark eyes, and a cruel red mouth. That's the 1930s pulp version of a dragon lady. She's extremely sexual-- a real vamp, able to seduce Asian and Caucasian men as easily as breathing. She's also evil or amoral and very dangerous--she either knows some exotic martial art or carries a gun. This stereotype is pretty much the opposite of the demure, submissive geisha girl stereotype; however, Asian girls and girls of Asian descent (both ordinary ones and actresses) often feel that they are always cast into one or the other role.
Another usage, also stereotyped, is sometimes used by Chinese-Americans to refer to a mean or demanding older female relative who has a habit of scolding and bossing her descendants (and/or husband).