Varla is the young daughter of Jeriff and Marinda who was thought to have been lost in the Swamp Of Darkness but in reality had been captured by Venger and imprisoned in the Forbidden Tower. Varla could create illusions and Venger wanted to use this magic for his own purposes, ultimately wanting to use her to defeat the Dungeon Master as he hinted that she would become much more powerful in the future, saying that as she grows so will her powers in unimaginable ways. Venger uses Varla to persecute her village by making it look as though a famine had struck the swamp. She is rescued by the heroes and becomes the romantic interest for Presto.
Varla could also project illusions of herself and use these projections to talk with others remotely. This communication suggests a form of telepathy which could explain a contradiction in her illusion of Tiamat. Varla said she did not know who Tiamat was so Diana described her as a five-headed, winged dragon that was as big as a barn, but the illusion was a perfect copy of Tiamat. It is possible that the illusion casting also involves a degree of mind-reading to make the illusions more real, and that Varla subconsciously read Diana's mind to conjure a more accurate image.
In the original script it is revealed that Varla is adopted by Jeriff and Marinda after Dungeon Master found her abandoned in the swamp as a baby.