Defeat the boss character Fin-Fang-Foom.
Dodge the flames and kill the various characters attacking you. The dragon will start flying around and dodging. Just run to the front of the heli-carrier and and jump into the big cannon so you can fire at Fin-Fang-Foom as he flies around. Don't forget that the stick not only aims the gun left and right, but up and down as well. You can get a better bead on the dragon if you keep the gun aimed nearer to center and up. Fire as he approaches from afar and jump out of the gun to get away from the front of the carrier before he comes in for a landing.
Once he has landed he will concentrate on a cycle of sweeping and distance attacks with fireballs. He is vulnerable while he has landed on the heli-carrier, so use your distance attacks on him while dodging and weaving until he takes flight again (Cap's shield is perfect for this even early in the game). Each hit from the gun takes about 15%-20% health, so between that and the grounded attacks, you can defeat him in 4 or 5 cycles on easy. More for harder levels but the pattern remains the same.