Setting aside well-trodden roads, and getting into wilderness: If dragons are a standard risk in the wilderness, but fairly infrequent, and twice as likely on the plains as in a swamp, then that might not be too costly to learn from a sage. But if a dragon slaughters a party in the wilderness, is there anyone to hear the screams? That's a Bad Place, and all normal men need to know about going deep into it is that people who do tend not to come back. People who do take their chances, and if the dice indicate a dragon sighting in swampland, then so be it.
Yeah, that makes sense.
Theres a subtley here that I think may be part of the confusion. Earlier in the thread it was suggested that a fully simulated "sandbox" was impossible. In that putative state, the DM knows that there is a dragon in the swamps and it's current position and plans. If the party crosses it's path, they will encounter it. If they don't, they wont - no dice come into it (outside of whatever spot/hide style checks are approriate for your game). It is perhaps that level of attention to the game world that is being proposed as impossible.
As you say, what is done instead is the random encounter roll. The DM may decide there is a dragon and roll to see if the players encounter it, or may decide that there is a probablility that there is a dragon and rolls to see if there is one and if it is encountered. If a dragon comes up on the table then it becomes resolved - there is a dragon and it is here (and attempting to roast you alive). If it doesn't, it remains a potential for dragons.
As the party moves away from the point where they encounter the dragon (however the encounter ends) then the DM can update the world, however, to keep the work involved to an appropriate level, this may be abtracted. For example, if the PCs kill the dragon then they may replace it's entry on the encounter table with "Nothing","New Dragon","Hoard seekers" or whatever.
In this way, only the area that is directly percived by the PCs is simulated to the highest fidelity of the system, whereas the further out you go, the more abstracted things get (Dragon-moving-on-graph-paper becomes Dragon-as-line-on-random-encounter-list, for example).
This may be, I think, part of Hobo's point. The fully simulated world, where every bandit group and diplomatic envoy is tracked is not feasible. Compromises must be made. And indeed, compromises are (or at least, from this thread) seem to be made.