This might be Dragon Quest by Andy Dixon (Author), Felicity Brooks (Author), and Nick Harris (Illustrator) from 2005.
The people of Shortsville have lost all their hair due to an evil wizard's curse, and the reader can help them break the spell by solving the picture puzzles set in different scenes around town.
From a review (bolding mine):
I love this book. I had it as a kid and me and my brothers and sisters would all sit around it looking for all the different objects. The artwork is amazing and some of the items are difficult to find so you don't just breeze through it. Each quest has several different things you have to find...for instance, the very first quest you have to search for the three other adventurers, find weapons to arm yourself with, look for the book of maps, and gather food to take along with you. You also need to find a red key on each page so that you can defeat the wizard later on. Then, at the bottom of the page there are bonus items to find, so you're usually looking for at least 50 objects. It's a lot of fun, and my siblings and I still enjoy this book all these years later. Even my mom was looking at it with us, so it's good for all ages.
Found via a Google search for fantasy hidden object picture book dragon (not my first attempt, but I don't keep track of the failed ones)