I am finally getting around to answering your questions, Ceph!
Okay, here goes,
1) It happens at the end of my first book. After Viarri has recaptured Issedrae and everyone is offering her the crown, she knows she does not want to be Queen. She remembers how Kings and Queens have always been. Maybe at first they are a line of just, moral, kind rulers, but it always had devolved into a line of lazy gluttons and immoral tyrants. So she comes up with the idea of the Cloud Warriors, when she sees several more people being sent eggs.
2) Per thousand humans? At first the cloud Warriors are not a very large group. But, seeing how great the Cloud Warrior's dragons are and what kind of lives they lead, more female dragons, when pregnant, send their eggs to a human. I will explain this here, because My story is no longer fully posted. When a mother-dragon is giving birth she has a choice; either she can keep the egg with her and make it hatch herself or she can magically give it to the Weaver of the Threads of Fate who will guide it safely. Another thing she must choose is whether to send it to a secret place of safety or to a human who will protect it. But the Mother doesn't know to who or to where the Weaver has taken it. Viarri made it so that, whoever received the dragon-gift, would be sent to the Cloud Warrior's academe to be trained, along with their dragon.
In governing/administrating the help of normal humans is something that may is not used. I'm sure exactly what you meant by in war. But if you mean, does the army have normal people in it, then yes. Only a few Cloud Warriors go with the army, the rest of it is just like a regular army; composed of foot soldiers, cavalry, and such.
2.1) It depends on what era you are speaking of. If it were when the academe and counsel had begun about 30 years ago, then their wouldn't be that many there. In fact, there would only be a Cloud Warrior for every section. So that village would only be a part of a group of several villages governed by a Cloud Warrior. The governing is basically deciding what to build where, what improvements are needed in the village, judging cases of crime and thievery, and the like. (The Cloud Warriors are instructed in law as well as fighting.) The law enforcement is simple, they act as police, patrolling the area, catching crooks, acting as an ambulance when needed.
2.2) The economy is kept in line by them. Education is not as plentiful as Viarri had wished it to become. It is mostly centered in large cities and run by the parents and the people.
3) The country is flourishing while the Cloud Warriors reign, so most everyone is pleases and happy with the current power-holders. But there are still those who believe that the power belongs to Viarri and that of her Father, the rightful heir and not the low and high borne dragon-lovers. There is often ripples of jealousy when an egg is given to one and not the other. No they do not feel oppressed.
4) No they are not oppressed. There are inspectors sent from the counsel (Mostly counsel members themselves) to see to it that the people are being governed justly and fairly. Another thing to remember is that each cloud warrior is God-picked, meaning, each one was chosen by God. (or the weaver of the Threads of Fate.)
5) the counsel, in their hay-day, (the time in which Rainfire, the fourth book, takes place) is about 9 or 10 people. They decide on the paths of warfare, economy and other matters of the state. They oversee the training of the young Cloud Warriors. And other things. There are many rules, all defined when they take their oaths before entering into the counsel. They settle disagreements by prayer and/or votes.
I hope that answered all your questions.

I was pretty sleepy when I started writing this. I'm sorry if it is a bit vague. I couldn't remember that De__________ word! Decromacy? Deplomacy? No... Oh dear...
