Board Thread:Lore Discussion/@comment-13446185-20130814010604/@comment-7407991-20130814012304

The Dragon Cult wasn't the ruling power during Ysgramor's time. It was, as it sounds, a cult. Although it's not explained exactly when, or how, the Cult took the seat of power and began ruling over Tamriel with an iron fist. The Dragon Priests demanded tributes and sacrifices to be made to the dragons, and when they didn't recieve them, the Dragon War insued. Ysgramor was around during the middle (or maybe closer to the end) of the Merethic Era, but the Dragon War happened at the end of the Merethic Era. In fact, I think the Dragon War was the last event in the Merethic Era.

On another note- The Dragon Cult was able to take power *probably* because of what the Ancient Nordic pantheon was at the time. Before the Nine Divines became known to men, they worshipped animals like hawks, whales, (Likely Tsun, as his "spirit form" is the whale) foxes, wolves, moths, owls, and bears. However, the chief diety in their pantheon was the dragon. And, since dragons believe power and truth to be one and the same, they came to the conclusion that they should rule over the squabbling mortals, as they saw the dragons as the most powerful beings on earth.

Hope that helps. I got a lot of this info from the UESP, so check there if you want more information.