This is one of the islands to which you can travel in your ship, and you can purchase other ships there. You can also find one of the map pieces in the water by pushing the fisherman near a crate at the bottom of the stairs and ringing the bell. There will be a piece of the map in the fish's mouth that you can retrieve.
Many players like to trade here due to the fact that you can sell items for the most doubloons here.
In a sneak peek for the book Pencil Warrior, the villain holding the eraser is trying to rub out Dragon Cove.