The Crown is the sign of leadership for the kingdom of Daventry, and is passed down from King to King in turn. By the laws of the land, possession of the crown also indicates the authority to rule Daventry, and must only be given to one who holds the land in the highest regard.
In King's Quest II: Romancing the Stones, King Graham is given a vision of his future (during the time frame of King's Quest III Redux), wherein the Father offers to end his curse and free Daventry from the dragon in exchange for the Crown, explaining that he needs it to locate a certain object. Graham refuses, even if it means the destruction of his own family, as this would mean putting Daventry itself in the hands of the Father. Upon the return of Prince Alexander, it's discovered that the Crown glows in the presence of The Item, revealing it as the object of the Father's desire.