It sounds really nice, lot's of directions for us to go in. As for the technological age, I was thinking Middle ages? We can play around a little, but have the most advanced projectile weapon be a crossbow and the most cost-effective transport be horse-and wagon or something. Ordinary people would be able to afford very little of those luxuries, making the world a dangerous place. Very few people travel far, and if they do it tends to be permanently. There is a law enforcement system, but there is little they can do to completely safeguard the wilderness, do bandits are very common among the roads. 

Originally I was thinking of having the dragon come from the mountains, but now you mention the lake that also seems like an interesting option. I like the idea of a water-influenced design and he would have had enough contact with humans to at least have a decent idea on how to imitate them. Water is also often associated with change and transformation, so that would give an explanation for his powers.

What do you think?