Actually, in the context of the day "dread" was a term implying great respect. It was considered proper (and was quite common) for one to speak of a monarch in lofty terms such as this. Revered actually means honored, or venerated. This also was rather lofty language but was quite common in that day to describe a ruler. He was almost always referred to as the "sovereign" meaning supreme ruler, although in point of fact James nor any other English king could call themselves truly sovereign, as their power was restricted by the English Bill of Rights and the Magna Carta.
The relationship was indeed one of great respect and veneration; which the language implies. There was no hidden agenda or subliminal meaning in this choice of words; it can be found quite often in other legal documents; in fact titles of real estate in the colonies prior to independence referred...
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to the "__ year of the reign of our sovereign lord George," etc.
So, I would not read a great deal in the language other than the fact that it was seventeenth century parlance by way of demonstrating respect for the king whose loyal subjects they were.
You are close to right, but I think that your definition portrays the relationship between the people and the king as one that is kinder and more loving than it really was.
The word "sovereign" means "ruler" more than "leader." A "leader," for the most part, is someone who has the consent of those that follow. By contrast, a "ruler" is someone who simply tells others what to do. That is what a sovereign is--a sovereign can simply do what he or she wants without really having to gain the approval of his/her subjects.
As for "revered" I would use "feared." In the old days, people would talk about "fearing God." This is how rulers were seen as well. We might have some affection for them and we might revere them, but beneath it all, there is fear. I think this is what is implied by the word "dread."