Dragon armor is crafted using Dragon Ingots similar to vanilla armor recipes. The armor can be crafted once you have your first kill of any dragon.

You can imbue the armor with properties of the various dragons once you have learned the knowledge tome corresponding with each dragon type. You must master a dragon by killing five of that type before you can carry it's armor. To upgrade, interact with a Dragon Altar with the armor in hand.

If you somehow obtain an upgraded dragon armor without mastering the appropriate dragon, you will notice negative effects until you have proven your strength against that dragon.