According to Vacca (the only friendly dragon elf), the dragons wanted protectors for the island, who were strong and fearsome like themselves, but less intelligent. The elves were a new race at the time, and deemed a suitable starting point.
The Next Generation didn't officially address the change to the Klingons, that I recall, just made a few jokes and references about it. It wasn't until Enterprise that it got linked in with Augments and human genetic engineering.
