Was Dragon related to the holy knights? Was he a holy knight?
Yes but he resigned after he saw the corruption.
We can clearly see 16 light rays raining down from this Attack on lulusia. Which could indicate you need 16 individuals with strong haki to use this unknown Power. Im sama + 5 Gorosei + 9 holy knights = 15 only. So dragon was Nr 16 back then. After he left, they searched for somebody else to do the Job, hence why they couldn't use this Power to wipe out Ohara more efficiently than the Buster Call back then, where even some books survived.
They found Shanks as nr 16 replacement. In exchange, he would guard the one piece, so no Pirate would reach it and oppose the Government. Evil Shanks theories are back on the Menu, he was part of lulusias destruction.