Gather 'round, little ones. You ask where the Day of Bones comes from, and why the dragons that reside along the shores of the Forbidden Lake decorate their dwellings with skulls? It all began with a war, years upon years ago, ferocious and bloody.
You see, the dragons of Vystriana thought it a good idea to come here, to Kurai, and attempt to seize our lands from us and take control of what was not theirs. A war ensued, long and difficult, growing until Kurai's borders could not hold it longer.
By then dubbed the Bloodreign War, it spilled into the lands of Xaeri, home to the xeriin - people that stand on two legs like you and I, but possess qualities of their animal brethren. The "normal" xeriin, those allied with the ocean, sky, and forest animals, sided with the dragons, against us. Their counterparts, the myth-type xeriin came to our aid.
Still the battle dragged on, until finally the demons reigned victorious, and chased the dragons back to their own lands. If I'm not mistaken, those that had attacked us were banished from even Vystriana, sent into exile for breaking a peace that would have otherwise been kept for hundreds of years more.
A few dragons remained behind, and these are precisely the ones you are curious about, younglings. You see, the ones we allowed to remain by the Forbidden Lake were just as glad for the ending of the war as we were. They had understood long ago the futility of it all, and had pleaded for it all to stop.
When it finally did, the survivors, demons and dragons alike, gathered up the bodies and cremated them all, sending their souls to the Soulplane and returning their bodies to the earth. When the pyre at last dimmed, a single skull remained, the last of the flame flickering within its depths, and to the dragons around the Forbidden lake, it became a symbol.
It represented a new life, a new age of peace and prosperity, and the end of unspeakable pain and suffering, and so the dragons took the burning skull, kept the flame alive with their magic, and hung it high at the center of the new town around the lake.
Even though the Forbidden Lake no longer holds a city, as the dragons fled either northeast or out of this Realm, the tradition still stands in many places where dragons live. Each year after that day, the dragons have saved the skulls from the first kill of their hatchlings, and decorated their homes with them during the Day of Bones. They believe that doing so will bring prosperity to their children, so that they may grow strong, live long, and never have to face such a violent, needless conflict as was the Bloodreign War.
What happened to the xeriin, you ask? Well, younglings, that is a story for another time. Off you go now.