I saw this from digg. A comment led me to the original source at Grand Illusions, where I found I could download and print a PDF file, to cut out and create my own paper dragon illusion.
The effect is absolutely, uncannily real. You just close one eye, and sway back and forth, or bow or stretch your neck, while looking at the dragon. The dragon, in turn, magically follows you around: not with his eyes, but by (apparently) turning his entire head to look at you! I’ve got one on my desk right now (the PDF seems to have a blue dragon, though, not green). It kinda creeps me out every time I try it.