Whilst Fjarsjodan may be formally referred to as a 'city-state', it isn't a particularly large city by any standards - and, with the census only taking into account residents, should actually count as a town, as a decent portion of the population are travellers and traders. The tall mountain it sits on is known as Ljómikkvalla, a name that has lost meaning since the dragons first claimed it. The female dragon, Kveikeldir, and the male, Angavaskr, rule over Fjarsjodan as benevolent rulers and count it, and all of its citizens, as part of their hoard. Both have lived for thousands of years and thus count as incredibly dangerous foes, but rarely do any have reason to oppose them.
The town is very welcoming to outsiders, provided they remain respectful of the draconic leaders Warriors and mages of all sorts are welcomed and directed to Askeldhjall, a hunting hall named after Askelladden, a former town hero. Here, they can meet with others like them and take on quests to assist the region for a number of valuable rewards. This is how the two dragons divert negative attention from themselves and save their energy for larger threats, such as opposing dragons. Whilst they dislike spending the coin, the adventurers often spend large amounts in town that return to their Hoard.
Townspeople are encouraged to take up trades, and the dragons reward any who travel outside and return with new knowledge and experience - contrary to the popular belief that none are allowed to leave. This was a rule in place for many years, but was removed when a group of citizens asked to be allowed to do so, thanks to the plethora of immigration the town receives when people learn of its living conditions.
Speaking of immigration, permission to live in the city on a semi-permanent or permanent basis must be sought before the dragons themselves. Only those courageous enough to make their case are even considered, and some are still rejected for other reasons (such as performing necromancy). Some also use this to try to convince the dragons to take them on as apprentices, which usually only works if they are exceptionally skilled or already connected to the town (or someone in it).
Mostly human and dwarven, with small groups of half-orcs and more bestial races mixed in. Draconic bloodline is common amongst sorcerers and bloodragers. Class divisions are based on knowledge and ability rather than on wealth, as the dragons manage the city's levels of wealth and tolerance.
All serious political decisions are made by Angavaskr and Kveikeldir, though the citizens do maintain a small council to consult with them. The council is generally listened to, but are overruled on occasion - with provided reasons.
In addition to a strong guard force, towers and underground shelters, the two dragons that rule over the city also function as an incredibly effective defence.
Thousands of years ago, long before even the Worldrend, dragons ruled the icy north. Kveikeldir was born in the Eastern reaches, and Angavaskr the Western. They met over the southwestern reaches, as the older Kveikeldir explored and discovered an aggressive older white dragon trying to challenge Angavaskr's fledgeling claim over Ljómikvalla. Knowing that the younger silver dragon could not win alone, she dove into the fray. Whilst they won, it was close, and both suffered mortal injuries. They tell that it was the god Apsu who united their souls and spared them the fiery grasp of death; very few are alive to contest that claim. In their victory, and with their strange union, they claimed Ljómikvalla together.
Fjarsjodan formed later. A group of humans found themselves lost in a trek through the southwestern mountains and, seeking shelter from the vicious winter storms, wandered into Angavaskr's lair. Terrified, they'd tried to flee from the sleeping dragon. As they ran back out into the blizzard, the second-youngest saw an opportunity for glory and stole a small gemstone from near the door. Angavaskr awoke at the thievery and trapped the man, roaring that their lives were all forfeit for the deed. The eldest, an older man named Sjalfi whose beard reached the floor, agreed with this, to the horror of his companions, and bowed low to Angavaskr. And said he: "My lord, if our lives are forfeit for Fjolvarr's treachery, send us not to Heaven but claim us for your Hoard. What is a gemstone compared to the value of a life?"
Angavaskr, newly-awoken from his rest, was not inclined to spare the old fool, for all his honeyed words. It was Kveikeldir's calming rumble that answered him and stayed Angavaskr's claw. "A living hoard? Your bloodlines shall live under our rule, guarded by might and spared much suffering, bringing both mortal and dragon prosperity!"
The rest was, as you could say, history.