Pearls were believed to be the tears of the moon, and some of these tears were swallowed by oysters. Some were taken up by dragons, and others were bestowed upon those who needed it.
The Boy and the Dragon Pearl
One tale of the dragon pearl is of a poor boy and his mother. He had to cut grass to feed his mother and the animals, but they were barely surviving. Every day, the sun made the ground more and more dry, and so the boy had to travel farther and farther from home. On one day in particular, he had walked many miles and found nothing. Upon giving up, he spotted a lush area of grass, which he promptly cut. 
Over the next few days, the very same spot of grass had regrown over and over again. He tried to transport the grass home, and, in doing so, recovered a beautiful pearl. He gave it to his hapless mother, who promptly hid it in a half-empty rice jar. To the son's demise, the grass he had brought back the day before had not regrown. 
However, when they looked into the rice jar, it was filled. They then placed the pearl, which they knew was magic, into their small collection of gold coins. After this, they were rich, and began to give to those in the village who had helped them when they were poor. 
Sadly, suspicion set in. Those in the village all knew of this magic pearl eventually, which began to make some angry. Some of the less kind inhabitance told the boy that the pearl had to be shared. 
The boy promptly ate the pearl. Immediately, he began to get thirsty and was said to drink the well dry before proceeding to the river. After he drank the river, he began to turn into a dragon. Now everyone knew what this pearl was - it was the Pearl of the River Dragon, the dragon's most coveted and beloved treasure. This boy was Xiao Sheng, but now he was a dragon. 
The village did benefit from this, however. As he turned into a dragon, he brought the much-needed rain and carved the river, his way of saying farewell. 
For more information on footnotes and references, please see the bibliography.