The Dragon token is obtained by killing a Black dragon in the Evil Chicken's Lair. It is used to summon K'klik the fairy dragon in the Freeing Sir Amik Varze subquest of Recipe for Disaster. When you rub it, K'klik appears. You need to ask the dragon to flambé your brulee to turn it into a brulee supreme in the quest.
When used, you are transported away to another plane, so to speak. You are removed from where you were standing.
It can only be used within Lumbridge or Zanaris. Attempting to do so will give the message "The dragon's token doesn't seem to work here. Try it in Lumbridge town or Zanaris.".