There is the key difference.
That’s not a difference, that’s something both the character who believes the gods exist but aren’t gods and the character who believes they’re gods and aren’t worthy of worship agree on.
Why would a flat earth atheist necessarily feel that power does not entitle the being to worship?
They wouldn’t, that’s my point. That’s the core belief of the nay-theist worldview. “Sure, these powerful entities exist, but their power does not entitle them to worship.” If a character believes that, they’re a nay-theist, whether they use the word god to describe those powerful entities or not. A flat-earth atheist is someone who believes those entities (again, whether they call them “gods” or not)
do not exist, despite their falsifiable existence in the setting.
If a dragon demands worship as a god and you believe it is supernaturally powerful but not a god you can feel it's power entitles it to demand whatever it wants.
That’s different than the worship of a god. That’s cowtowing to its demands for fear of retribution, not worship. The closest analogy would be paying lip-service to a self-proclaimed god-emperor to avoid being executed. It has really nothing to do with belief (or lack thereof) in the divine supremacy of the beings others call gods and worship willingly.
If it is a good dragon there might be hero worship style worship that is earned or just given.
Now you’re stretching the definition of worship.
Exactly
The practical difference? The power they grant?
They both grant magic power in exchange for service. That’s not a difference at all, let alone a practical difference.
Not to me. Prayers and public reverence and participation in rituals would be enough. It may be insincere worship, but it is still worship. I believe there was a greek and roman strain of thought that even though the gods are not actually real, public piety and respect for the gods including worship and offerings and rituals is important and salutatory.
If you believe the gods aren’t real, you’re an atheist, even if you think participation in the rituals performed in their service are still worthwhile. If you’re an atheist in spite of incontrovertible evidence the gods exist, you’re a flat-earth atheist. If you do believe the gods exist, you’re a theist. If you don’t believe they should be worshipped despite their existence, you’re a nay-theist. It’s not complicated.
Not as something that is definitionally entitled to worship.
Great, then how
are you defining it?