The best place to find information, after our very own Dragon Dictionary is the Dragon Cave Wiki.
Here's what it says:Undead Dragon
Release date May 2007
Rarity Extremely Rare
Color Gray
Breed specific action None
Nicknames Zombie
Undead Dragons, also known as Zombies, are a special breed of dragon only obtainable by users killing their hatchlings and/or adults and then attempt to revive them in order to obtain an Undead; therefore, many dragons are killed in the process. This has caused some controversy in the past about Undead dragon.
An Undead Dragon can only be obtained on the 31st of October. There are rumours that it is possible to make an Undead during any time of the year, with a 1 in 100 chance of success. However, in more than two years there hasn't been any supporting proof to this rumor. The only known Undead dragons not created on the 31st are owned by TJ09 Qemrao Thuwed and 0eidw Qemrao Thuwed. These dragons aren't considered proof, as TJ09 is Dragon Cave's owner and can create Undeads at any time he wishes.
On Halloween, the chance of creating a successful Undead is somewhere between a 1 in 2 to a 1 in 6 chance. It's not necessary to kill the Dragons you want to zombify on the 31st October: they can die or be killed within 14 days before. The success rate is related only to the date on which they are revived, not the date on which they died.
Undeads are not easy to obtain. When the "kill" action is used on a Dragon, there are four potential outcomes, only one of which is becoming an Undead. The Dragon can be killed completely, and your attempt to revive it will reduce its body to dust, resulting in a tombstone on your scroll for 2 weeks. It can revive as a "normal" Dragon, returning to its original state. Lastly, it can dodge the blade completely, remaining alive. ("Dodgers" cannot be killed for 24 hours after a dodged Kill attempt; they will continue to dodge the blade.)
Undead Dragons are only visible on scroll between 12AM and 6AM DC time (EST). However, in months with 31 days, Undeads' tombstones are visible during the day of the 31st. Undeads cannot breed and will not appear on an Incubator. Curiously, they are the only Dragons that "roam" in the scroll, changing position among the other Dragons. Even if repositioned, they keep on wandering. This is because during the eighteen hours from 6AM to 12AM, they do not appear on the sort pages, so sorting during the day does not affect them. They remember their numerical position (their number in line), not their relative position (which dragon they are supposed to follow). Because their neighbors change, they appear to roam the scroll.
All Dragon breeds can be zombified, even Golds, Drake, Vampires, Pygmies and Splits (the last two have a regular zombie sprite, even if their size/aspect isn't like other Dragons). Unbreedables such as Papers and Cheeses have been confirmed to be able to become an Undead. It has not yet been discovered if Dinos can be zombified; the same goes for Holiday Dragons, Guardians of Nature and Neglecteds. However if a Limited Breed Dragon was zombified, you couldn't take another one for replacement as the Undead will still be counted as its original breed.
Once on a scroll, Undead dragons cannot be released. Undead hatchlings do not grow: they are auto-frozen upon being killed. In the Dragon Cave community, Dragons raised solely for the purpose of being killed in attempts to create Undeads on Halloween are called "zombie fodder." Common dragons and inbred dragons are generally used for this because they are easy to replace.
Undeads used to permanently take up the kill slot used to create them. However, this was an unintended occurrence, and since the beginning of October 2011, zombie-held kill slots have been released. Currently, any kill slot used to create an Undead will return after 2 weeks, exactly the same as a kill slot used for any other purpose.
These dragons are often confused with Neglected dragons and Vampire dragons.
Undead dragons are considered very rare and currently have no breed specific action.
And, naturally, being "undead", they cannot breed.