Why shouldn't he be vague and terrifying even to the hobgoblins? If the guy is Koth's ace-in-the-hole, his fallback to protect him should Karkilan do anything stupid like try and assassinate Koth, then it stands to reason the regulars shouldn't know a lot about him either.
You could even have them up the horror aspect by suggesting that the Varag is the "ghost" of Vraath Keep to the hobgoblins -- that they were told there's no ghost, but something is creeping around the place while they're there.
As to how much information the regulars should know -- there was an earlier response in the thread regarding Uth-lar (leader of the first encounter) being taken captive that IMHO nicely captures the level of information involved:
The only note I added to that query was to play up Azarr Kul as a semi-godlike figure, at least to the hobgoblins. As to their knowledge of dragons, I'd say you could safely suggest a green dragon supports Koth, since that'll scare the hell out of your players. Beyond that, keep the regulars ignorant.They're interrogating Uth'lar now (the bashed him to negatives then healed him and bound him). I fear I'm giving away too much information, although part of it is for a player who has Azar Kul written into his backstory. So far he's told them...
- "The Son of the Dragon", a hobgoblin with blue scales, has united several goblin tribes and has dragons and monsters at his disposal.
- General Kharn is the leader of the army. Koth is a powerful gnoll sorcerer who will kill them all and is leading this initial expedition.
- The "day of destruction" will fall upon the "river town" soon.
That may seem like a lot. It's the result of Charm Person plus a few really respectable Diplomacy rolls. I don't intend for him to give much more except for maybe "they're in an old fortress in the woods" since none of the party has the Vraath Keep plot-hook. What do you folks think?