- For the castle see Dragonstone (castle)
- "The island itself was and is nothing. It had no gold or gems to lure Valyrian nobility, all it has is rock."
- ―Stannis Baratheon
Dragonstone island produces no significant crops (such as wheat or barley), nor can it sustain livestock farming (such as cattle and pigs). The surrounding waters of Blackwater Bay are plentiful enough with fish - the main food source that can be locally obtained by the island's inhabitants.
Large amounts of dragonglass can be found on Dragonstone, but it isn't a precious or even particularly useful material, being too brittle to make weapons and too sharp to use in building. Otherwise, the only significant advantage of holding Dragonstone island is its strategic position, guarding the entrance to Blackwater Bay and King's Landing.
While Dragonstone island itself is of no particular value, its command of the sea lanes passing into or out of Blackwater Bay, to and from King's Landing, give it an ideal strategic value. The Royal Fleet is stationed at Dragonstone island, from which it can effectively defend (or in time of rebellion, blockade) any approaches to the capital city.
Just before the Doom of Valyria, four hundred years before the War of the Five Kings, House Targaryen settled on the island - thus becoming the only family of Dragonlords to survive the fall of the Valyrian Freehold, along with the last surviving Dragons in the world. The Targaryens spent the next hundred years slowly building up their strength on Dragonstone, while east of the Narrow Sea the remnants of the Freehold tore themselves apart in the Century of Blood, eventually coalescing into the Free Cities.
One hundred years after the Targaryen family settled on Dragonstone, Aegon I Targaryen and his two sister-wives Visenya and Rhaenys set out to conquer and unite the Seven Kingdoms on the mainland of Westeros, in the War of Conquest. This they achieved using their three dragons, Balerion, Vhagar, and Meraxes.
Aegon I declared that a new capital city would be built at the place where his army first made its landing on the eastern coast, at the mouth of the Blackwater Rush: King's Landing. The seat of House Targaryen moved there, but Dragonstone always remained their ancestral territory. Soon, the title of "Prince of Dragonstone" was developed for the heir-designate to the throne. Frequently, the heir to the throne would rule Dragonstone directly for years to prepare for ascending the Iron Throne one day. For example, Rhaegar Targaryen was Prince of Dragonstone during the reign of his father, Aerys II, the Mad King.
During Robert's Rebellion, after the defeat and death of Rhaegar at the climactic Battle of the Trident, the Mad King sent his younger son Prince Viserys and his pregnant wife Queen Rhaella to Dragonstone for safety. Soon afterwards, Tywin Lannister's army arrived at the capital and betrayed the Mad King as soon as they entered the gates, resulting in the Sack of King's Landing. During the sack, the Mad King was killed by his own Kingsguard, Jaime Lannister. Viserys on Dragonstone technically succeeded his father as king ("Viserys III") - at least according to Targaryen loyalists, as Robert Baratheon usurped the throne and was crowned king himself.
With no major armies left, the boy Viserys was trapped on Dragonstone with nothing to do, and weeks passed as the rebels prepared to launch an attack on the well-defended island (as the rebels did not have any strength at sea). Queen Rhaella later went into labor, the same day that a massive storm struck the island and destroyed the remaining Targaryen fleet at anchor. Rhaella died giving birth to her daughter, Princess Daenerys Targaryen. A short time later a rebel fleet commanded by Stannis Baratheon set out to attack the island, but before they could loyal servants spirited away Viserys and the infant Daenerys on a remaining ship, fleeing across the Narrow Sea to the Free Cities. When Stannis arrived he found an empty castle. Years later, Daenerys admitted that while she considers the Seven Kingdoms to be "her country", the last time she was actually in it she was just a baby (in the brief period of time after she was born on Dragonstone).
Afterwards King Robert made Stannis the ruler of Dragonstone - instead of giving him House Baratheon's ancestral seat at Storm's End, the mighty fortress that is the capital of the Stormlands. Instead, he gave Storm's End to their much younger brother Renly Baratheon. Robert later tried to explain to Stannis that he did not mean this as an insult, but because he needed a firm hand to rein in the Targaryen home territory on the island, and he pointed out Dragonstone's royal pedigree as the traditional seat of the heir to the throne. Stannis was still not amused. In time, along with his wife Selyse of House Florent and their daughter Shireen, Stannis formed his own cadet branch of House Baratheon, "House Baratheon of Dragonstone".
Following his failed assault on King's Landing in the massive Battle of the Blackwater, Stannis barely managed to retreat back to Dragonstone with his few remaining forces. Still, Stannis remains effectively knocked out of the war after this point, with no sizable armies or ships, making him more or less trapped on Dragonstone.
Stannis obtains a provisional loan from the Iron Bank of Braavos to rehire the sellsail fleet of Salladhor Saan, and uses it to transport most of his remaining forces north to the Wall, in time to decisively intervene during the Battle of Castle Black. While Stannis has removed from Dragonstone, he hopes to rally the defeated North as a new springboard against their shared Lannister enemies.
In the books
Beyond Dragonstone castle, Dragonstone island is home to several fishing villages which obtain food from the surrounding waters, but otherwise the small volcanic island is not well-suited to farming crops, raising livestock, or pasturage. A small number of shepherds and the like operate on the island, but they do not produce enough to feed the entire island's population, which must rely on the sea.
One of the few advantages the island itself possesses (besides its strategic location) is the active volcano known as the Dragonmont - possibly the only large active volcano in the Seven Kingdoms (though smaller thermal vents and hot springs are relatively common). Dragons prefer to nest in caves in the sides of volcanoes, being attracted to the heat. The ancient Valyrians first discovered dragons nesting in the string of volcanoes in Essos known as the Fourteen Fires. Dragonstone island was thus an ideal location for the Targaryens to raise and breed their surviving dragons. Some dragons were later raised in the massive Dragonpit built in King's Landing, but the main hatcheries remained on Dragonstone in volcanic tunnels.