Turning the insignificant not just significant but rather into a special kind of awesome is perfectly in spirit with good lore. Flags and banners are symbols (Eel soup is generally speaking not) and symbols are the stuff of magic.
But then what is the difference between a commoner and a hero/king/god/whatever? The argument would be, someone who isn't mythically significant in their actions or self. But if Joe Imperial can wrap himself up in enough symbols so that just from the sheer weight of symbolism attached to him, he becomes mythically significant, then those eels become dragons and his stomach, emblazoned with that giant red diamond, becomes the Empire and dragons suddenly see the Empire as the source of their doom and decide to [Nummit] it up.
Sometimes those two planks of wood lying across each other are just two planks of wood. So when are they symbols? When people make them symbols. I'm not arguing that the crown isn't symbolic, I'm just saying that the imagery is different. It isn't about dragons (unless Lady N is right), but it's about the Empire, laid across the Emperor's brow. The Empire is the Emperor's to deal with. It's the AOK that's the Emperor's symbol of dominance across the land. The Empire is the projection of that dominance and that then twists back around to the Emperor controls the Empire.
"But Dagon," you might say. "Why the name 'Red Dragon'?" A Red Dragon is yet another symbol for the Empire, hence the dragon emblazoned on the red diamond, hence Nafaalilargus' scale color, likely hence Ysmir's coloration too.
Also, http://img1.videos.com/thumb/yt/o/ytC-CLcNe0yao.jpg is relevant to the discussion.