No, they probably didn’t include the client villages; it was only the population within the walls of the city (and the outlying farms).
Then again, the Original campaign setting series of adventures started off with a rebellion against Kalak, so I’m guessing until his ultimate demise, the Dragon was significantly diminishing the already struggling society. Had it been not for the heroes of Athas, the Dragon would have consumed everyone and everything.
As a side note, the Dragon in the Original setting was depicted as a roaming beast, feasting upon trading caravan and even villages.