A masterpiece of pre-CG effects
The dragon's movements are smoother than the stop motion in Robocop years later and it has more physical presence than any CG. The most glaring issue is the differences in light and contrast in superimposed images. But that is easily overlooked in light of a great script, memorable characters, political subtext, and a dash of medieval realism.
A CG effects person wrote in a comments section that a lot of people think practical effects looked better because directors shot around the effects to cover up their limitations, while with CG studios want every penny on the screen. So CG creatures are brightly lit and perfectly clear, with a ton of screen time. And consequently it looks more fake, lacking in mass, and videogame-like the more we look at it. (It takes only seconds for the fakeness to become evident in the Jack the Giant Slayer trailer.) In contrast, in Dragonslayer the visual effects - including the dragon, magic lights, sets, costumes, props, and backgrounds - are presented fully within a cinematic context that includes careful framing, mist, fog, shadow - and yes, grain (screw super-HD, 3D, and 48 fps!). If CG was shot the same way it would look way less crappy. (Come to think of it Cloverfield is an example of a believable CG monster for this very reason.)