This film, and its surprisingly well-done novelization, tell a coming-of-age story set against a background of great historical change; one of the reasons it works as well as it does is that the background is very well realized, and if one ignores the fantasy elements, surprisingly accurate historically.
Dragonslayer appears to be set in the late 5th century CE, in the period after the collapse of Roman authority in England. This was a period of vast and inexorable change - as the Romano-British system of government disintegrated, the Saxons - first brought in as mercenaries to fight the encroaching Picts and Irish - swept across the English countryside, before finally being turned back at the Battle of Mount Baden. At the same time, Christianity spread rapidly throughout the region, driven by a strengthening monastic movement. It was during this period that the legends of King Arthur appear to have been born ("Arthur" was probably a war leader instrumental in turning back the Saxon armies,) and that Romano-British civilization gave way to the new Christian, Anglo-Saxon order.
The authors of Dragonslayer appear to have done their homework; it's more obvious if you read the novellization, but it's there in the film as well. The characters have an interesting mix of old British names - Ulrich, Malkin, Greil - and "new" Christian/Roman names - Valerian, Simon, and the main character Galen. Smatterings of Latin show up throughout: all of Ulrich's and Galen's incantations, and Simon's magical lance - Sicarius Dragorum, which translates roughly to 'Dragonslayer,' of course. In the novelization, Simon recounts recalls seeing the fall of a Roman garrison during his youth; the last of the Roman soldiers stood amongst the ruins, howling a battle-cry as the locals closed in for the kill. Simon says that he decided to give the lance an "old" Latin name in honor of that lone legionary's bravery. This and other little flourishes do a good job of suggesting the fall of an older order and the transition to a new one.
The political trappings of the story are relatively authentic, too. As the central Roman government collapsed, local war chiefs rose and declared themselves king; numerous battles eventually consolidated rulership under a high king, but for a long time local lords were the sum total of government. Dragonslayer's authority figure is Casiodorus Rex; he's taken a Roman name and title (as the princes of Europe were wont to do - everyone wanted to assume the mantle of Roman rulership), but is obviously mainly a local authority with a band of lackeys to back him up. Who else would care about the fate of so small a town as Urland?
One of the strongest trends of the period was the swift ascendancy of Christianity, and the theme is very noticeable throughout Dragonslayer. An itinerant priest named Jacopus is in town at the beginning of the story; he's incinerated by the dragon Vermithrax (the name is Latin for "worm of Thrace,") but the townspeople continue to ponder the madman's words, and increasingly identify with the Christian faith. Simon gives Valerian a cross when he sends her away from Urland for safety, saying that "it can't hurt," and that the tides of history are clearly flowing in its favor. Indeed, by the end of the story, a new priest has arisen in the village and even Simon is baptised, stoically surrendering to the inevitable currents of change.
The story continually emphasizes the fact that Ulrich and Vermithrax are the last of their kind, and indeed they become symbols of the old world - in destroying one another, they bring the period to a close. In a particularly telling scene, the newly-minted Christian congregation and Casiodorus reach the dragon's corpse at the same time, and both claim credit for its destruction. In much the same way, church and state would vie for supremacy and control of the old Roman political order across Europe for centuries.
All in all, Dragonslayer does an excellent job of capturing and utilizing the darkness of an uncertain time. The fading Roman cultural influences, the obvious weakness of a feeble king who nevertheless holds the common folk under his power through force of arms, the continuous references to the crumbling and enfeebled ways of the past, and the mournful inevitability with which Simon treats the Christian fervor that subsumes the beloved traditions of the ancient world - all provide a very strong background to Galen's coming-of-age story. All of it, combined with some rather brilliant cinematography - brooding forests, ancient, decaying fortresses, and the humble hominess of Urland - produce a cohesive and compelling atmosphere. Dragonslayer is a tale about growing up while the world around you falls apart and changes forever; by building the story on truly solid fundamentals, its creators have imbued it with meaning beyond what one would expect, and produced a surprisingly moving whole. If you're into that kind of thing, I'd heartily recommend it; you won't be disappointed.