Dracoliches are basically dragons who have become liches. Some of the most famous dracoliches are found in D&D Forgotten Realms Campaign Setting (which this writeup is about), but skeletal dragons and other types of undead dragons are not specific to D&D by all means (for example, Ultima VII has skeletal dragons). Dracoliches are unquestionably the most powerful kind of undead found in Forgotten Realms.

In the Forgotten Realms, the spells for creating dracoliches were discovered by archmage Sammaster (nowadays a lich himself), the founder of The Cult of the Dragon. This Cult believes that it is inevitable that the dracoliches will one day rule the whole Toril, and works to convince evil dragons to become dracolichs.

Dracoliches are half-skeletal and dried in appearance. They retain most of the abilities they had in life, and are only minorly hampered by being undead in first place. They also have numerous other abilities they didn't have in life, including most of the typical undead or lich special abilities. They are similar to normal liches in that their life force is contained in a phylactery, which is a specially crafted magical object. The spirit of a dracolich whose body is slain can retreat to its phylactery, and possess dead dragon bodies from there - these bodies are then, over time, transformed into new bodies for the dracolich.

As expected, only evil dragons have chance of becoming dracoliches - good ones probably could, but they know that dracoliches themselves are always evil in mind, so they won't dare to do that. There are tales of good dragons attaining immortality in other ways - for example, Eldenser the Lurker, a brass wyrm, has preserved his old body magically and spiritually occupies swords. Yet, good dragons may sometimes become victims of the dracolichs in case they have a sudden need for a new body - undoubtedly, the Cult may also have hand in this.

Ed Greenwood, Skip Williams, Sean K. Reynolds and Rob Heinsoo. Forgotten Realms Campaign Setting, 6/2001. Wizards of the Coast, Third edition, 6/2001. ISBN 0-7869-1836-5.