There's no way the king would step down just because of that. The MC was too naive. I doubt the dragon really cares about its reputation in that single, young human town enough to return later to check if anything happened. Of course it might, but it only threatened the kingdom to return a favour. So, it shouldn't personally care about it all that much. The king will just wait a bit. If nothing happens, he might issue a declaration the whole dragon incident was nothing but illusion magic the enemy tried to use to throw their kingdom into chaos. All the more reason to wage war.