The royal cape is a thick, dark cape with the symbol of a dragon's head on it. It is dropped by any of the three stages of grotworm which can be killed without completing the quest Song From the Depths. All grotworms have the same drop rate for the cape, making it best to kill young grotworms to receive the cape.
The symbol on the cape appears to be the Queen Black Dragon's head, whom you encounter during the Song from the Depths. The cape is marked with eight eyes, a trait unique to the Queen Black Dragon.