This island is only seen in the special holiday short film, Gift of the Night Fury. It is very clear that this island is the breeding grounds for the dragons where they will migrate to to lay their eggs and let them hatch (it's also safer this way since some eggs explode when they hatch like the Gronckle). The dragons will stay on the island until the baby dragons are old enough to fly and then they will all migrate back.
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This Island is most likely inspired by the real place called Yellowstone Caldera. It has a similar color scheme and feel to it.
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