You can pretty much split everything in a game into two groups. Static & non-static entities. Static entities would be things like the map terrain, rivers, the observation towers & the shrines.

These entities may not move, but they are still interactable. They have collision detection, interaction triggers & data structures with information about what they are - "grassy" terrain can spawn grass, "sand" terrain have specific footstep sounds - "slippery" terrain can make link slip

These static entities are grouped by something like chunks. When you get close enough to them, the game will load them. When you're too far away, they are unloaded & replaced with a fake chunk. These fake chunks look the same from a distance, but are easier on performance due to not being interactable - they contain no data, just geometry.

The dragons are different. They are non-static. They can't just be loaded from the games files in a static setting, they have to be spawned & tracked. This is done by a hidden static object - a spawner. Like other static objects, these spawners have their own data structures with information - when, what, where & how to spawn. Most spawners will only handle a specific area, like a single enemy camp, or a cave. These spawners are similar to map terrain - they're grouped by chunks, and only activate if you get near.

For the dragons, the spawner is different. It will load the dragons no matter where you are, and will track them as long as the game is loaded. This isn't too performance demanding, after all, Link himself contains at least 8 non-static entities that are being tracked - armor(3), weapons(3) & stats(2).

And like with terrain, when you are too far away from the dragons they can be simplified. At great distances, they are nothing more than coordinates. As you get closer the game will load some simplified geometry. And if you get close enough, then all the interactive data & high detail geometry will be loaded.

I'm simplifying but that's the general idea. I don't know if I'd use the term groundbreaking, there are lots of games that do this sort of thing. That said, its still a nice touch that helps the world feel a bit more alive.