Here we can see the dragon's cave. There was a sliding door inside the castle leading to the cave. Note the bedding, as well as the iconography above -- apparently, in the happy, hippy 70's*, the dragon and the knight were friends. In our adventures, sometimes they were friends, and sometimes they were enemies. Note the vine climbing the castle wall; there's a very nice vine on the tallest tower, and more than once people scaled the sides.
And finally, the interior. The staircase swiveled out, revealing a secret hiding place big enough for a Little Person to hide in. There was a balcony (though we never did any Romeo and Juliet scenes). The owl is sitting on a sign pointing to the village -- years later, after we got other Little People sets, the village began to take shape, and included a farm and an airport.** The owl, black cat at the foot of the stairs, and the suit of armor behind the secret stair led to many adventures in a haunted castle.
One last thing to note: When flicked, the springy flag at the top of the tallest tower would give a satisfying twang. While that was not important for any of our stories, it didn't stop us from twanging it at every opportunity. More than once the princess would escape the castle by pulling down on the flag and then catapulting herself as far as the spring would fling the little peg princess. Apparently, in my imagination, princesses were hardy enough to survive a very great fall.***
*An era that gave us such travesties as disco, Jimmy Carter, and non-violent Tom & Jerry cartoons.
**Little-known fact: Most medieval manors had an airport.
***I'm not sure what that fractions book is doing in the background, since all the kids currently living at my parents' house are either too young or too old to be studying fractions. Maybe the king and queen were promoting an mathmatical education campaign among the peasants.