The ship-dwellers were the scavengers who wrecked ships that entered the Drexel system to gain metals.
During the time of the Galactic Republic their ancestors lived in the Korteen Belt, and posed as miners but were actually scavengers. They used sonic jammers to disrupt passing ships, causing them to collide with the asteroids in the belt. Then the scavengers would strip the ships of their cargo. Soon this activity caught the attention of Jedi Knights who forced the scavengers from their residence and sent them limping to the remote, water-covered planet of Drexel.
They built the city-ship and resumed their scavenging ways with the sonic jamming technology now built into their floating city, bringing down any ship that strayed into the Drexel system. But the native species of the planet, the sea-dragons, were antagonized by the hypersonic jamming signal and repeatedly attacked their ship. The scavenger's technicians objected to the use of the signal claiming it was causing harm to the sea-dragons, but their objections were ignored and they were exiled from the city-ship. These technicians soon developed a relationship with the sea-dragons and became known as the Dragon Lords and fought Quarg's attempts to use his jamming equipment.
With the help of Luke Skywalker and Han Solo, the Dragon Lords overthrew Quarg and reclaimed the world.