Dragon weapons and Knightmare armor are unique crafted weapons and armor. To craft these unique items, you will need pet components or "parts". When you have all of the required parts, you can craft the item at the Animal Trainer in any town. Be warned, as crafting is not always successful. Failing during the crafting process ruins the components and they are lost forever.

Pet Components
Pet parts/components come from harvesting pets. Basically, you take a pet to the Animal Trainer, select "Harvest Pet Component", and if successful, you get a random pet component. Sacrificing a higher level pet does increase the chances of your success in gaining a pet componenet. You are also more likely to get one of the rarer parts from a higher level pet.

Uses of Dragon Weapons and Knightmare Armor
Dragon weapons will always be the same level of your character with an equivalent of a +6 upgrade. They cannot be upgraded beyond the +6 nor can they be blood sealed. One of the great things about them is that they look great. They have the effects of a weapon that has max upgrades, lots of glowing and lighting effects. There is a lot of contention surrounding the usefulness of Dragon Weapons. Your character is able to equip weapons four levels higher than their own level while the Dragon Weapons are always limited to your current level. A normal weapon cannot only be equipped four levels early, but it can also be upgraded beyond +6. This adds extra bonuses as well as damage. Normal weapons can also benefit from the added effects of blood seals whereas Dragon Weapons cannot be blood sealed.

Knightmare Armor suffers the same problem as the Dragon Weapons. They are limited to your current level, are only +6 without the option to increase the upgrade and cannot be blood sealed. Though they do have the pretty effects that would normally apply to maxed armor upgrades (a very bright little fairy that hovers over your shoulder).