Everyone hadn't met the Dragon Race before so they didn't know about their abilities to turn into human form. Therefore, nobody discussed how they were able to reproduce with other humans.
The Dragon Race was an exceptionally powerful race in which humans couldn't do anything about them committing a crime and then escaping.
Following the Dragon Race's carefree lifestyle of stirring up havoc, the number of half dragon humans increased in quantity as they slowly grew into a community and soon, a race of its own.
These fellas with mixed human and dragon blood possessed the intelligence of humans and the superior strength of dragons which made them a powerful race.