This is an appropriate beginning in so many ways. It's the first piece of mature fiction HPL wrote (and the first he published in Weird Tales), and it introduces a surprisingly developed set of the themes he'd visit for the next 20 years. There's the "archaeological exposition" in the form of hieroglyphics or bas-reliefs, the topos of the submerged evil god/place, the allusions to existing myth but with substantial changes, and even the final despairing narrative shriek to break closure conclusively. It's also the story that forced him to begin his lifelong project of defending, and explaining critically, weird fiction. (Members of the APA where he first circulated the tale disliked it, and its genre, intensely.) As great a writer as HPL is, he's almost as great a critic. (This is surprisingly common.)
This story thus begins both those strands of his thought, and is almost the purest exposition (save the prose-poems) of his thesis that weird fiction is built up from incident, not from action. This, perhaps, is why the narrator is such a passive weakling. Indeed, more than most HPL stories, we really are faced with an unreliable narrator. The sunken continent rises while the narrator dreams wildly, and sinks while he is delirious. In short, he enters and leaves Dagon's realm through his dreams (on a boat, like Max in Where the Wild Things Are). His only proof is nothing: he clearly remembers seeing Dagon at the temple, and he hears noises ... but are you gonna believe a self-confessed suicidal morphine addict? This device keeps this story surprisingly fresh; it's one of Lovecraft's few completely successful (in my mind) variations on Poe's structure. But where Poe was writing psychological horror (admittedly of a very emotional, Romantic bent), HPL was writing existential horror. In "Dagon," you can see it hatch.
NEXT: "The Statement of Randolph Carter"