1) Bonding allows two beings to feel the relative strength and health of the other. It also allows one being to slowly gain a trait the other has that they see as "superior" to their own traits and that they desire. The other being, however, will not know what traits you are gaining unless you tell them, they see you using it, or they see a physical change in you. The desire may also be subconscious, such as jealousy.
2) Changes occur faster the larger you perceive the disparity to be and the more you desire it, but are limited by the physical body. Ex: You may think that Dragon wings are the best advantage ever and crave them more than anything, but it will still take your entire a lifetime or more to get them if you are human, as they are contrary to your body's physiology.
3) Traits gained through bonding are hereditary, and have a 50/50 chance of being passed on to children, assuming only one of you has the trait.
4) Bonding requires a strong emotional connection between two beings. The specific emotion doesn't matter, and can be different for each being in the bond, as long as it draws them towards each other.
5) At least one of the beings in the bond must have some degree of magical ability and control. Without ability, the bond won't form, without control, the bond will grow unstable and break.

Assuming at least one of the two has magical ability and control, and both have a strong emotional pull towards each other:
1) One being saves the life of the other.
2) One being protects another from serious harm, though not necessarily mortal harm.
3) The two beings drink a drop of each others blood (Called the Vampiric bond, and is sometimes stronger than other bond forms).
4) Two beings co-mingle their blood in their bodies (the usual method is to cut yourselves in a minor way and touch the wounds.
5) Sex (requires a very powerful emotional bond. Only known to work with Lust, Love, and intense friendship which borders on love.)

Dragons can naturally have any power at their level or above, though not Life or Death, as those are only for the Ultimate Dragons. Example: Petty dragons can have any of them, Greater can only have the powers of Greaters and Grands.
Also, dragons essentially consider it a sin to to gain the magic of another dragon through bonding, as your powers were chosen for you by the Dragon of Life.

Grand: Pyrokinesis, Hydrokinesis, Geokinesis, Aerokinesis
Greater: Lightning, Ice, Heat beams, Ferrokinesis, Weather control
Common: Telekinesis, Telepathy, ESP (Battle sense), Psychometry
Lesser: Health transfer, Energy transfer, Illusion
Petty: Rapid plant growth, Calming presence/song, Enraging presence/song, Glowing, Restore health, Restore energy, Heat-sight

Of all the animals that the dragons tried to turn into pets, Apes were the favorite of most dragons because of their naturally higher intelligence. They could be trained more easily and taught to do things which the other pets could not. Within a few generations they could even learn to use a crude form of Dragonspeech, clean their own living areas, and build fires for warmth using coals from previous fires. Because of this and their relatively slow reproduction rates they were kept in large groups.
These large groups soon developed problems because of the cramped conditions. Lice, fleas, and ticks became major problems. Insect bites and stings were also a problem even though the dragons gave them medicines to treat their conditions.
Because they also applied these medicines to their Dragon masters, many of the Apes realized that their hair was causing them problems, and would rub it off of affected areas if they could. Soon, because of the Bond with their masters, some groups of Apes had lost most of their hair. They were called "hairless apes" and became the new favorite pet due to their ease of care and lower disease rate. Dragons began to breed the hairless variety of ape exclusively with other hairless apes and soon they could only be bred with other hairless apes.
In some areas the hairless apes started to develop a system of grunts to represent different concepts in Dragonspeech. They taught this system to the other pet races and it began to grow as the various pets made up their own sounds for different ideas. The hairless apes began to call themselves by two of these sounds, Hoo, for Bald or without hair, and Ma, meaning Ape. Other races followed suit, using the word Kee for "pet" as a suffix for their race, thus the Apes became Ma-kee, the Cats became Ki-kee, and the wolves became Ga-kee.
As they spoke with each other in this new not-dragon speech they came upon the idea that Dragons could make new things, and could make nature obey them. The mortal races craved this ability and soon developed greater creative abilities. With these abilities they developed tools to make their jobs and lives in general easier.
Not only could Dragons invent things, but they could do things which no mortal could do, such as command the elements or move things with a thought. The mortal races also craved this ability, and soon they began to control magic.
Dragons could not allow the mortal races to control magic, however. Magic was a gift from the Ultimate Dragon of Life to the dragons, and in was sacrilege for these pets to have it. This magical ability also made them a threat to the dragons. With the Dragons fear and disgust with their pets growing, many of the mortals hid their powers. Those that didn't were killed.
In order to survive, many of these Pets ran away from their masters. They formed their own groups and hunted and gathered for food. From time to time, however, they would come across dragons, usually avoiding them, but sometimes fighting them. One of these times a group of Mortals came upon a group of Petty Dragons. The dragons were protecting a herd of deer that the Mortals wished to hunt, but the Dragons refused to let them hunt them. They fought and, with their superior numbers, the Mortals won. As they were growing desperate for food, one of them suggested trying to eat the dragons. When they cut the dragons open to harvest their meat, though, they found glowing stones, something which they had never seen in a dead dragon before. They removed these stones to keep as trophies and finished harvesting the meat and other useful parts, such as hide and claws.
Later that night, as they dried their new dragon hides, they told the story of the fight to the others in their village. One of the hunters pretended to spit fire, as one of the dragons had, and it worked. He did it again and again, reveling in his newfound powers, and the Stone he carried with him dimmed until he could no longer see its glow or produce the fire.
From that moment some Mortals started hunting dragons to take their Stones. The Dragons knew they couldn't allow themselves to be hunted and fought back. Soon mortals defended themselves as well and both sides had little choice but to fight, lest the other side kill them. Magic became the weapon of choice in battle, and Dragon Hunters, with their ability to get dragon hides, claws, and Stones became rich.

The village of Triom sat at the base of a mountain, just south of a large lake, on the banks of a river coming from that lake. Fifty-seven years ago a Greater Lightning Dragon by the name of Storm-cloud attacked the village. Though they lost many of their numbers, the guards of the village were able to subdue it with the help of Zeris, the guard Captain, and his Fire magic. Rather than kill the Dragon and take its Stone, however, Zeris offered to spare the dragon's life if it swore fealty to him and paid back the people of the village for all it's attack had cost them. Out of a fear for its life it agreed.
Zeris swore to it that as long as it was a friend of the village he would treat it as a servant, not a slave, and that it would be free to go once its debts were paid. With this commitment to each other and him sparing its life, a bond was formed between them. He nursed it back to health and, in time, the people of the village came to appreciate having a Dragon around.
Many people flocked to the village with a Dragon protector and, in time, it became a great city. When Storm-cloud's debt was paid off it realized that it liked living with the mortal races, and had even gained the power of speech from them. It decided to stay with the city, and the people threw a festival to celebrate its decision.
Now, however, a Grand Fire Dragon, Inferno, has been seen flying towards the city. Old Zeris and Storm-cloud are not enough to defeat it and, despite the many mortals with lightning magic, the entire force will not be enough to do much more than buy the people time to evacuate.
Zeris called his troops and the city's volunteers together to confess something to them. Sixty-one years ago, before he came to Triom, he was a Dragon Hunter. His group of five came upon a Grand Dragon which was hibernating in its cave, guarding six eggs. They stole the eggs and, when they were sure they had gotten away, they sold one of them, keeping one each for themselves before parting ways, now rich. Zeris waited for his egg to hatch and, greedy for the dragon's stone, killed the newly hatched dragon. That is how he gained the power of Fire, as he still carried the Stone.
We must warn the other four members of his old team, or Inferno will surely seek them out as well so that it can have its revenge. We will also need allies so that we can eventually face it in battle and win. Few have faced a Grand Dragon before and won, by we must if we are ever to reclaim our home and be safe.