Fred starts his quest by taking the right-hand entrance . He follows the light  and talks to the man he finds there , thus meeting Belboz the necromancer. Belboz offers to assist Fred by casting, for a reasonable fee, any magic that he knows. Fred's voice in this episode is not as formal as it sometimes is, which may be foreshadowing to some of his coming impulses and choices.
Fred asks Belboz to turn him into a dragon to properly fight the evil dragon . Perhaps surprisingly, Belboz simply replies by asking what colour of dragon Fred would like to be  and gives a list of the different dragons and their main attributes. (Personal note: This answer seems surprising, coming from a Necromancer. Speculation to follow below).
Fred answers that he wants to be a Blue Dragon  and acts like a child when Belboz asks if Fred is certain about his decision. The spell that Belboz casts consists of two parts: First to immobilize Fred, enclosing him in a 'box of pure energy'. This spell only took a single word to activate. The second part seemed to be the spell itself, which required both verbal and written (rune) components to cast, plus several lookups in his spellbook.
Fred: A dragon without training
Assuming that Belboz is successful, Fred is now a mighty Blue Dragon. However, there are a few minor things that do NOT come standard with the body, such as breath control and flight . It is also only now that Belboz names his price, namely 'to have the help of a dragon' after Fred 'defeat[s] the evil dragon of the caves'. We also note that Belboz refers to the evil dragon as a 'she'. Belboz reveals that he can create magical shields very quickly to block Fred's accidental lightning discharges.
Fred asks how he's going to learn how to fly and to control his lightning, to which Belboz says, 'Beats me. You're the dragon, not me' . Belboz triggers something that teleports Fred back to the tunnel that led to Belboz's study/cave, and now the entrance is blocked by a magical barrier. Fred is startled by the sight of his own body and accidentally discharges his lightning again, but can't figure out how to use it deliberately afterwards. Fred's personality this chapter varies between serious knight and jubilant child. Belboz instructs Fred to follow a tunnel to a cave suitable for training/practice. Just as Fred disappears from Belboz's view, Belboz remembers something and calls out after Fred, but Fred doesn't hear/doesn't notice. Chapter includes several description details of what Fred now looks like.
Whatever Belboz was going to say was, unfortunately, important . The important detail isn't made clear yet, though. It could be that the entrance to the suitable training cave is through a hole in the floor that's masked by an illusion, or it might be something yet to be revealed (as of ep. 108074). Regardless, Fred literally falls for the trap.
This is also the first episode where Fred speculates on whether he would have a chance against a more experienced dragon and whether Belboz was even able to turn him into the evil dragon's equal, power-wise. (Some of the other dragon transformation options branching off of  explicitly have Belboz only able to make Fred a 'Level 1 dragon', so this concern may be warranted.) Fred's inner narration also uses the phrase 'upper wing' instead of 'upper hand' when thinking of the other dragon. Is there some level of draconic subconsciousness mixing with Fred's thoughts/personality?
Fred lands heavily  on the floor in the cavern below. (Dead-end option: Fred goes directly to  by landing neck-first). He injures his right arm and right wing. He makes a lot of noise as he rights himself again: one more accidental lightning discharge and one mighty roar of pain. Fred again demonstrates human reflexes (trying to shield his face from falling debris with his hands) that don't work very well for his new body proportions. Once Fred is back up on all fours, he hears something coming towards his location.
The adventuring party
A tiny dog pulling a semi-clad warrior woman enters the cavern.  The red-haired woman is currently unconscious. Now that there are other characters to talk to, Fred's ability to control his volume when he speaks becomes a recurring concern (a dragon made of THUNDER and lightning isn't naturally very quiet).
Fred tries to reassure the dog that he's a friendly dragon, but the dog loses its nerve and flees . (Abandoned path: The dog stands its ground, Fred is overcome by laughter and he brings the ceiling down with uncontrolled thundering). The warrior-woman is abandoned to Fred's care.
Fortunately, the dog's ward wakes up soon after . Seeing that she's at the dragon's mercy, she asks for a swift death. Fred tries to reassure her that he is not the resident dragon of the caves and that he means no harm. Fred's speech this episode is far more formal than we've seen to date, no doubt because there's a lady present.
The woman is skeptical of Fred's story , but goes along with it. She introduces herself as Astra and the dog who fled as Velus. Like most storylines, Velus is a young man turned into a dog, and Astra has sworn to protect him. Though unconsciousness has left her with a nasty headache, she is quick to get down to business. Astra's priorities are: 1) Find Velus, 2) Re-equip herself, 3) track the dragon of the caves. We also learn that some dragons have glow-in-the-dark eyes (Electric blues and fiery reds, at minimum). (Abandoned path: Astra berates Fred for trusting a necromancer and voices many of the doubts Fred started to express back in )
Fred realizes that 'Astra' is actually 'Princess Astra of Aqualaria', who had gone missing months earlier and is presumed dead.  Astra asks Fred not to stand on ceremony and also gets Fred to whisper from now on, which he does (with some lapses when he gets excited). From here going forward, Fred's normal (thundering) voice is consistently noted by boldface, Fred whispering (at normal human speaking volume) is denoted by regular text.
Fred offers to accompany Astra , and does so using sexist 'Damsel-in-Distress' phraseology that Astra doesn't appreciate - though the mentality expressed does confirm for Astra the story that Fred told about being a knight transformed into a dragon. Astra interrupts Fred and demonstrates remarkable accuracy by throwing a stone and hitting Fred squarely at the base of his injured wing. How Astra could make such a lucky shot in the dark is not elaborated on. (Abandoned path: Velus returns, and we learn that the duo were searching for one of the dragon's treasure rooms)
Size Matters: Getting Stuck
Astra and Fred follow the tunnel that Velus fled down . Astra finds that the light from Fred's eyes is barely enough to see by, and we learn that among the gear that Astra has lost are several lightstones.
The tunnel soon gets to be too narrow for Fred and Astra to comfortably walk two abreast . Astra takes the lead despite Fred's chivalrous desire to be in front, and does so without revealing her reliance on Fred for light. As the cave continues to narrow, Astra reveals she's seen dragons manage smaller (implying a previous dragon encounter) and that dragons should be able to navigate any tunnel they can fit their head into, and encourages Fred to try slithering like a snake. Fred finds this comparison distasteful.
Nevertheless, Fred agrees to give slithering a try and manages to make progress . As they move, Fred speculates that he might be a bigger dragon than the resident dragon, and recalls that Belboz referred to the evil dragon as 'she'. Maybe Fred has an advantage after all?
Astra tells Fred not to get his hopes up . We learn that female dragons are, on average, slightly larger than male dragons. Fred and Astra stop when they arrive at a cave-in that blocks their route. (Abandoned paths: Astra points out that the dragon is a magic user and a shapeshifter and that anyone encountered might have been the dragon in disguise, even Belboz. In another path, we learn that Fred's scales have a natural one-way grip to help him glide forwards but might cause trouble if reversing.)
The duo appear to be stuck , but Fred thinks he might be able to put his dragon body to work clearing a way forward. There's a small gap in the rubble big enough for a small dog, so presumably they're still on Velus's trail.
Fred can't get good leverage on the rocks , so tries blasting through with lightning instead. Fred tries unsuccessfully for a few minutes and only manages to fire a bolt after Astra interrupts, so it's unclear whether Fred has learned control or if lightning is more of an emotional response (embarrassment, in this case). (Abandoned path: Fred manages to push the debris over, and finds a magical artifact. We learn that dragons can identify magic items by touch, and an experienced dragon might be able to discern more. I've been wanting to extend this line, but haven't been able to come up with good artifact powers)
The rock pile shatters, but Fred has hit something he shouldn't have . Astra is temporarily deafened by the explosion.
Fred discovers that he wounded Belboz , who is now bleeding and unconscious. Astra demonstrates some advanced first aid knowledge and Fred finally learns that his glowing eyes have been Astra's only source of light. A sharp piece of rock is embedded in Belboz's gut, which Astra refuses to remove lest it cause more damage. Curiously, Belboz didn't put up a shield to protect himself like he did back in his study. (Speculation: If the shape-shifting powers from the abandoned plotline apply to this plotline, perhaps one of the Belboz's encountered thus far is a fake?)
Belboz begins breathing again, but remains unconscious .
Fred and Astra wait as long as they can, but there's no change . In their silence, they can hear various noises from elsewhere in the caves. We learn that dragons have extremely good hearing that can make sense of words even when echoed through a long tunnel. They have no choice but to abandon Belboz for now.
They come to a cavern where there's a fire and six goblins plus a captive. Unfortunately, the captive is much too big to be Velus . The goblins quickly flee from the approaching dragon (Fred).
The dragon arrives
Though the captive was human-sized, it turned out to be something very surprising  - a bound-up baby red dragon in a sack. We learn that goblins delight in taunting their captives. (Maybe that contributed to why they were so quick to flee an adult dragon, too?)
This would be a very bad time for the momma dragon to show up, so naturally this is exactly when the resident dragon makes her entrance. . This red dragon about twice Fred's size, dashing any remaining hope Fred might have of possessing any form of advantage over her.
- Belboz is a necromancer. To change Fred into a dragon he used some aspect of a dead dragon. This would further imply that Belboz is powerful enough to have bits of each colour/type of dragon. Why he would need Fred at all is then a mystery.
The first Belboz encounter was with a fake - the dragon of the caves (a magic-user and shapeshifter) disguised as Belboz. She forgot to mention the drop because it's a non-issue for her, and could turn Fred into a dragon because she isn't actually a necromancer (or at least has access to/training in other magics). Maybe she saw something in Fred that she found attractive?
Fred's transformation will eventually make him think more like a dragon and less like a knight. Will Fred eventually turn 'evil' too? Is the current dragon actually a victim of Belboz's magic?
The dragon may not actually be evil, just unconcerned by human affairs.
Where do dragons get the energy to fuel their breath attacks? What would happen if Fred runs empty? (Perhaps absorbing magic from the items in their treasure hoard, or maybe there's some power in gold? Perhaps just from food - in which case, Fred will be getting powerfully hungry soon. Do dragons eat princesses?)
What happens to the spell on Fred if Belboz dies? (Ending the spell and leaving Fred without a shred of equipment (or dignity) might be the funniest option...)