1 That certainly was a surprising amount of character development in this episode, and it worked. I can't believe I never realized before now that the fairies (with removable wings) each command a different element. It was probably for the best that they explained the water fairy could only do tricks rather than move a daunting amount of flood water.

And I'll just point out that based on the next episode teaser, we now have four shows with dragons this season. Though it doesn't really bother me anymore because I gave up on both Cross Ange (turned out to be pure trash) and Bahamut (taking much too long to go anywhere).  Plus I fully expect some level of humor from Amagi's dragon.

2

The dragon was a surprise. I assume we won't see any kind of battle because this isn't that kind of show. But what will we see? (Wait until next week, kids!)

The fact that each of the fairy idols controls a different element was stated in the first episode.

What I think is going on is that they poured a huge amount of exposition into the first three episodes, but that's done now, and they can begin to tell a story about the scenario they set up.