This achievement cannot be completed until the final dungeon is unlocked.
Upon completing parts of the main quest the first time you arrive in Loegres a skit will play about an Axe wielding Ape during the main quest. It is a bit of a introduction to the code red Daemon system. Kill the Daemon.
Later on when you arrive in Reneed, continue with the main quest. After Melchior retreats and you head back to the ship there should be a group of NPCs(I believe they were active then however they may not be available until you get the Geoboard). They will talk about a Daemon in Eastern Laban Cave. Go there and defeat it.
Once you are far enough in the main quest to go to Taliesin, head to Port Cadinx and speak with the NPC at the Inn. They will mention a Daemon at Votigern. Head there and defeat the Daemon Lancelot on the Eastern Wall
Once you unlocked the final dungeon, head to Loegres and speak with Tabitha. She will mention a Sword wielding dragon and send you to defeat it. After defeating it head back and speak with Tabitha to complete the quest.