I happen to own a children's theme party company and Knights and Princesses is one of my most popular themes. I get them all dressed up in their costumes, paint flowers on the girls and moustaches on the boys. If it is a girl's birthday, it focuses on the princess more, but for boys, it's all about dragons. We don't have swords, they must use magic to tame the dragon.
All of my parties involve a treasure hunt. The premise is that the dragon has taken the treasure and hidden it because he was not invited to the big celebration. He is a mild mannered dragon, Herbert, who doesn't want to hurt anyone, but is very sensitive. I even hide dragon tears (shiny translucent stones) and I tell the kids that the dragon tears will protect them, so they each earn a dragon's tear to keep. I have a treasure hunt with clues, but it is pretty long to type up here. We also have a castle building relay race. Have a bucket of blocks for each team, they must build the castle a block at a time. The tallest wins. I don't give prizes for games, just the honor of winning. I also made a knights and princess bingo game using clip art.
My last idea is rather involved, but I will tell you about it, just in case. I set up a table with a smoke machine underneath. Someone hides under it (it is draped with ragged cloth to look like a dragon's den). Once the dragon steals the treasure, we go to his cave to get clues and games to play. The dragon is a hand puppet of just his hand. He slides notes and clues out from underneath the cloth and blows smoke. The kids really have to use their imaginations, but most go along with it. I can't think of any more right now. Sorry this is choppy, my little guy keeps calling me. You can check out my knights and princesses at my website if you wish. www.makebelieveparties.com
If you need more ideas, PM me.