The information in this article is from the fan game King's Quest II: Romancing the Stones and is therefore not canon.
The Old Man is Hagatha's suitor. In Romancing the Stones, he says he cheated on Hagatha and she turned him into a lion. The lion guards Valanice's room in the Crystal Tower. Graham can get past him in three ways -- two of which are available in the original (the ham or the sword). The third option is Graham's disenchanting crystal, which will reveal the lion to be a man.
He's based on the Lion in Romancing the Throne.