Two quotes, first is a section involving Cutter and Scillara while they are traveling to Otataral Island, and the second is one from Cartheron Crust (both quotes from tBH, p699 and p739 respectively).
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Although separated by 40 pages in the book, I believe these two quotes refer to one and the same storm, as maybe 5 pages before the Crust quote, Banaschar refers to a green illumination over the northern sky, a similar phenomenon to what the marines and everyone else in the Malazan fleet sees earlier in the book. My theory is that water somehow cauterizes the pieces of the Jade giants, and said chemical reaction makes otataral. To clarify, its not made to hold the Jade Giants as Heboric thinks in DG, it is a by-product of the Jade giants crashing into earth (and subsequently, water). Otataral Isle has just built up over thousands of years of these giants hitting the water in that locale, and then sand and such has washed up there, making it a permanent fixture.
All this being said though, I still cannot explain the otataral-aspected dragon. Maybe its just a counter to all the other dragons being the embodiment of the warrens, i.e. Sorrit (the slain dragon in the KCCM sky-keep) being 1/3 of the warren of Serc. Dunno, just a thought.