This item is dropped off monsters
From the 12.15.09 Producers Note:
In this version we’re introducing Dragon Scales, a new type of alternate currency that drops off all of the dragons, including Goldestandt, Cuuldurach, Gjalpinvulva, Xanxicar, Nosdoden, Myrddraxis, and Draco, their minions. These Dragon Scales can be bartered for Draconic Stones, Dragon remains, and Dragon treasure. The Dragon’s aren’t exactly going to part with their scales easily, so would-be Dragon hunters beware!
Per patch 1.100 (12.15.09):
* Golestandt, Lesser Dragons, Dragonsworn, Granite Giants, the Stonecrush and other humanoids in Dartmoor now drop Dragon Scales.
* Gjalpinulva, Lesser Dragons, Dragonsworn, Drakulv, the Svartalf and other humaniods in Malmohus now drop Dragon Scales.
* Cuuldurach, Lesser Dragons, Dragonsworn, Glimmer Spirits, the Azure and other humaniods in Sheeroe Hills now drop Dragon Scales.