Yeah, we know that dragons are cool. We wouldn't having a couple of them as pets, or even as kids.
But dragons weren't always awesome. They used to be (in the Western canon, anyway) super-scary.
Dragons are one of the oldest and most ferocious monsters in Western literature, and Spenser's dragon at the end of Book 1 is no exception. Huge, winged, with flaming eyes, this dragon gives Redcrosse a run for his money.
In fact, it's the dragon's belief that he'll easily defeat Redcrosse that ultimately spells his doom. Underestimating Redcrosse's resilience, the dragon ends up being blindsided by Redcrosse multiple times. Therefore, the dragon partially represents the danger of overconfidence and of assessing your own abilities to highly.
The Dragon is also a representation, albeit larger, of another notoriously pesky amphibian, the infamous serpent that tempts Adam and Eve in the Book of Genesis. By overcoming the Dragon, Redcrosse is therefore cementing his associating with Jesus by defeating Satan and freeing humanity from the terror of sin.