In the Year of Fell Pearls (887DR) Sammaster publishes his retranslations of many tomes including the Chronicles of Years to Come, of which was originally created by the oracle and seer Maglas. It is this tome that the Cult of the Dragon's sole purpose is founded upon.
The original translation by Maglas stated, "And naught will be left save shattered thrones, with no rulers but the dead. Dragons shall rule the world entire, and...."
Sammaster incorrectly translated this to read, "And naught will be left save shattered thrones with no rulers. But the dead dragons shall rule the world entire, and..."
Simply by moving some punctuation around in these Chronicles, Sammaster was able to talk Dragons into becoming a Dracolich and at the same time, recruit followers of the Cult.
It was also around this time that Algashon, a Priest of Bane, cast a spell upon Sammaster to bring him back life after a great battle Sammaster had with his former lover, Alustriel. When Sammaster returned from the dead, he no longer possessed the Silver Fire given to him by Mystra, but he did retain some qualities given to the Chosen of Mystra like fast healing and he was also able to remain ageless.
Later, in a successful attack to claim Sammaster's life, trickery launched by Algashon. Sammaster is killed in a battle. Algashon then takes over the Cult of the Dragon and steers the Cult into worshipers and followers of Bane in hopes to gain power granted by Bane.
At the time of Sammaster's death, Sammaster was said to be a lich himself. It is also said, that to this day, Sammaster remains in his Phalactery somewhere in the Dalelands, in an unknown location around the Battle of Bones, waiting a corpse to possess.
+ As the Dungeon Master in a Dungeon and Dragons game, it is within reason to believe Sammaster could return as a 26th-28th level Necromancer.
+ Algashon may or may not still be in control of the Cult, depending on when your campaign time is set.
+ It is also within reason, to make pacts between the Drow Warlords and The Cult of the Dragon, since the Cult has been forced to work in underground networks for quite some time.
The Cult is active throughout the Realms, but is specifically powerful in the Cold Lands and the North, where dragons are particularly abundant. Cult member activities include gathering information on particularly rich caravans to be raided, stealing unique items to be offered to their masters, and leading raids against their enemies (who, in their minds, are all those who might oppose the rulership of the dragons).
Senior members of the Cult of the Dragon are known as Keepers of the Secret Hoard or, more recently, Wearers of Purple, and to them is given the secret of creation of dracoliches. Each senior member is also in possession of a Ring of Dragons. The keepers use these to protect themselves against assailants.