If you saw a green dragon monster popping out of the Loch Ness, you'd assume it was the Loch Ness monster. If you saw a giant bear-humanoid creature roaming the forests in your back yard, you'd think it was Big Foot(or, if in Mexico and eating goats, the Chupacabra, or in the Himalayas, the Yeti). Probably more analogous, if you saw a winged lizard, dragon, or a horse with a horn, unicorn.
Lavos was probably a mystical, legendary being for these people. They knew they fought against Magus in 600 AD, and they probably knew enough that he was trying to summon Lavos(the Mystics worshiped him for creating him, so that may also be the case). Of course, the time period between 1000 and 1999 AD is 999 years, and a lot of discovery can happen in between.
That's my theory.