From the back of the book:
The Award-Winning Fantasy Role-Playing System
The most powerful and comprehensive fantasy role-playing system is now even easier and more fun in the thoroughly revised third edition. New Colleges of Magic (including Shaping and Rune Magics) have replaced outdated material and the unique experience point system has been carefully enhanced to make your characters capable of dynamic growth. Now presented in this one volume, the DRAGONQUEST system is once more available role-players everywhere. You actually need nothing more than this book and two decimal dice to play complete and enjoyable games.
User Notes:
TSR bought SPI (original producer of DQ) and the DragonQuest line fell by the wayside. DragonQuest Third Edition, appears to have been a thinly supported effort to bring DragonQuest back. (There appear to be no official 3rd Edition supplements.)
The addition of the Shaping Magics allowed for the creation of magic items, something very much lacking in the original system.
3rd Edition made changes to the Magic Colleges based on politically correctness sentiments by removing black magic and demon summoning. Additionally the race modifiers were altered and a few new magic colleges and magic related sections were added. The underlying skills/ranks system was unchanged except for minor modifications to rank costs.