With Malefor gone, the world returned to a state of peace that lasted for many millennia. Spyro and Cynder did, indeed, eventually restore the race of the dragons of old, who began to rebuild their old empire. Amazingly, the new breed of dragons was able to breed with the old ones, and the dragons produced from these unions were purely dragons of old. Sparx, after the other dragonflies were also returned to their old forms, met a female dragonfly named Kindel, who decided to be Cynder's partner even though she didn't need one, and settled down, too.
There had been few casualties in the final battle, amazingly; the magical wards had worked well, and only a few dragons, fairies, and other fighters lost their lives. None of Spyro's personal friends perished, and all of them were eventually able to return to their old lives (except, of course, for Moneybags, who struggled very hard to live in a world without money - even yellow gems, which hadn't existed before, were found to have magical properties, and were no longer used as currency).
Spyro and Cynder became the equivalent of the king and queen of their kind, and the whole world looked up to them. The two themselves, however, never ceased to be mindful of the possibility of a new danger rising in the world. They recognized that Malefor himself had merely been a slave to his power, and knew that something like him would happen again someday.