Dragon Knights are the chosen Champions of real Dragons and thus have been granted special powers and abilities. The most well known of these gifts are the power to transform at will into a Dragon themselves.
Background
Dragon Knights have existed as long as mortal races have walked Rivellon. Who the first was is unknown, but it is certain it was one of the elder Races; like an Elf. However, when humans started showing up, the Dragons preferred them over the other races and since then humans have been the only race gifted to be a Dragon Knight.
The most well known Dragon Knight was Maxos who was the first to be given the ability to transform humans blessed with the spirit of a Dragon into Dragon Knights. As time passed, real Dragons started to be seen less and less and in the end disappeared completely, leading people to believe Dragon Knights were real Dragons. Dragon Knights, before the Great War, had always been leaders and lords of their own land or area; like Lord Lovis in Valley of Shrines (before Ba´al attacked with his demons and renamed it Broken Valley) and Lord Orobas in Orobas Fjords, they have however always been rare, as well never being more than a few Dragon Knights at a time.
During the Great War however, a Dragon Knight stabbed Lucian the Divine in the back, leading to his supposed death and Ascension. This lead a group of knights seeking revenge to form the Dragon Slayers and hunt down anything of draconic history and wipe the Dragon Knights from the land.
Today, almost all Dragon Knights are gone because of the Slayers and their persistance to wipe all Dragons from the face of Rivellon. According to Arben, Talana was but the last Dragon Knight surviving in Rivellon. Though she met her untimely end upon Rhode, the player's character was unwillingly chosen to be the next Dragon Knight, and thus preserving and maintaining the ancient bloodline.