Ah yes, the old Nibbly theories. I remember getting into those way back when... Well, not that far back.
The world lore describes how baby dragons would venture out into the world shifted as small forest creatures, to learn about the world around them. That was a popular theory.
The idea that she's a remnant of Trace's shadow dragon was less likely but still possible, given her refusal to die, but with how far everyone's traveled since then, and knowing (approximately) how long it's been since then, it's unlikely that a squirrel would have made it that far unassisted and unguided.
She could also be one of Evil Trace's failed experiments, which is also possible, given that they were seemingly not too far from Edinmire, and it's possible he "disposed" of her in the woods.
And lastly, if I remember right, there was a theory that she's a puppet, controlled either by Master Seer or his daughter. Although... given what Sythe's injured, probably concussed mind saw, that's seeming increasingly unlikely.
I'd like to see a full character sheet of her, but I doubt we'll get one until the story is almost over.