It's tempting, often, to throw a whole bunch of monsters at a party. And frankly, especially at high levels, to sustain the difficulty you generally have to have any climactic boss fight come after a sustained series of challenges to burn off resources.
As usual, this isn't some guide - I may have been DMing D&D for several years now, but I still feel like a novice compared to the old guard who were throwing the Demogorgon at players before I was born. It's more of a speculation on how to build a fight that can feel like a real danger.
The Dullahan is a piece of Irish (and more broadly Celtic) folklore that has spread through a great deal of English-speaking culture. For Americans, the likely most well-known example of a Dullahan in fiction is The Legend of Sleepy Hollow. Washington Irving's story tells the tale of Ichabod Crane traveling to Tarrytown, New York, and being terrorized by the story of the Headless Horseman, the legend being that it was a dead Hessian mercenary who had fought with the British against the Continental Army during the American Revolution, and whose head had been blown off by a cannon, and now... basically haunted the place.
Indeed, I think most people would recognize the term "Headless Horseman" before Dullahan, but the idea is the same. (Sidenote: when I was 3, my older sister and I watched the old live action Disney movie Darby O'Gill and the Little People, which had both a banshee and a Dullahan driving a "death coach," and suffice it to say that we were scarred for life.)
In many ways, the Dullahan as portrayed in Van Richten's Guide to Ravenloft shares some similarities with Death Knights - they're both a kind of martial class, often mounted on a skeletal warhorse or nightmare, and are a wicked character who came back because of their evil. But, very importantly, the Dullahan lacks a head.
The Dullahan is CR 10, which means that for a party of 5 player characters, in theory it should be a balanced encounter for a level 7 party, according to Xanathar's guidelines. That said, that "balance" is very much based on this being one fight among many, and barring some lucky (for the monster) crits, it's not going to be that big of a deal.
The Dullahan has a +8 to hit and deals an average of about 20 damage with its melee attacks, of which it has two, or 14 with its ranged spell attacks (also 2, though this only has a +7 to hit.) Notably, the battleaxe is especially deadly if it crits - on a crit, the target has to make a DC 15 Con save or they get decapitated (the only races I could imagine that not being lethal for would be like Warforged and maybe Reborn - though if the thing survives decapitation, it takes a ton of extra necrotic damage). Spending all 3 legendary actions, the Dullahan can move, make a battleaxe attack, which does extra necrotic damage if it's not a crit.)
The Dullahan has an AC of 16 and an average HP of 135. However, notably, it's a mythic monster, and after "beating it," it goes into "phase 2," where it gains new legendary actions, summons a bunch of Death's Heads (flying heads that do various nasty things but are much lower CR) and heals back to full.
Frankly, making it a mythic encounter already helps amp up the difficulty - the party is effectively fighting two of these sequentially, and might burn a lot of resources on the first phase without necessarily realizing there's a second.
Giving the Dullahan a mount makes a lot of sense - a Skeletal Warhorse can work, but if you want to let them fly around and terrorize a place and also have a somewhat beefier steed, a Nightmare's a good option.
Now, how to build up the terror factor?
First off, this is a cool enough monster that you want to build up to it. Every campaign has its own different pacing, and I know I sometimes fret as a DM if I haven't thrown the party into combat for a session or two. But I'd really recommend you take the time to build up to this guy.
Dullahans are headless, but they're also really into decapitation. There's something extra terrifying about the kind of monster that specifically goes after heads. Decapitation is a kind of dehumanization of the body. Faces are the main way we identify one another, and so seeing a head without a body or a body without a head feels deeply wrong in a way that, say, a lance through the heart wouldn't.
You'll definitely want to make sure this is the kind of monster your players will find fun and not just disturbing, and be ready to broad strokes the descriptions of what this thing does if it becomes an issue. In fact, I'd even recommend possibly coming up with a different explanation for its instant-kill mechanic than decapitation if that's something any of your players don't want at the table - the Con save could easily be flavored as the Dullahan having the supernatural ability to sever the connection between soul and body, not unlike a Githyanki's sword being able to snip a silver chord anchoring a soul to the Astral Plane. I think there are different ways to rule whether a body can be resurrected with something like Raise Dead after its head is cut off - whether some post-mortem surgery could restore it enough that the spell would do enough to reattach the rest - but if you are worried that "not cutting off their head" makes it too easy for the party to recover the PC, you could simply say that part of the magic of the Dullahan is that you really need Resurrection or True Resurrection them back.
Anyway, a Dullahan is very much a folkloric, gothic monster that I generally imagine terrorizing small towns, especially isolated ones. You can 100% have an urban Dullahan (in fact, I'm tempted to use it as a lieutenant of the Death Knight that's hunting one of the player characters, though given that the party's managed to kill the Death Knight once and is now just trying to figure out how to make him stay dead, Dullahan might be a bit underpowered for them) but I really see them as country monsters - something that would keep an isolated town too frightened to take the roads away from town. Indeed, with a flying Nightmare mount and its flaming skull attack, you could have one periodically attack the town from above and set fire to the buildings.
Yes, I'm aware that that is precisely what the Headless Horseman does in World of Warcraft in the weeks leading up to Halloween.
Death's Heads, which the Dullahan summons when it goes into Mythic mode, can also serve as monsters to build up to the fight, though at CR 1/2, it's unlikely that any party that stands a chance against the Dullahan will find these guys to be much of a challenge. They're mainly meant to be a complication to the rest of the fight, but I think you could use them as well to foreshadow the eventual confrontation.
Here's one way you could build up to a Dullahan.
The party is heading to a small village somewhere likely in a deep wood (we want our headless horesman/woman to be hard to spot from afar) and they come across a scene of slaughter. It's a caravan that's been utterly wiped out, the wagons burned, and every body has been decapitated - but they can't find any of the heads. Maybe the party learns about the village by searching the wreckage, and they go there.
Then, in town, they find out that the village has been cut off for a long time now - there are stories of strange things in the woods, and maybe one villager caught a glimpse of a headless rider. Maybe there's some old legend of a headless menace from the village's past. Or you could lean into the Irish folklore side of things and make the Dullahan more of a fey being (in fact, in I believe the Creature Codex by Kobold Press, their version of the Dullahan isn't even undead - it's a fey creature that is horse, rider, and severed head all in one. Oh, and that version has a whip made of a human spine, which, I regret to inform just about everyone, is part of the established myth.) The Dullahan might be some fey punishment for some transgression against an ancient agreement with some archfey - maybe the Dullahan brings the heads back to his archfey master as trophies - or perhaps the Dullahan's head was taken by the archfey, and it made a bargain that once it had taken some insane number of heads (I feel like thirteen times thirteen has a good mythic ring to it) back to the archfey's court, they'd get their own head returned to them.
Ok, for our scenario, let's lean into the fey connection to up the stakes a bit - the Dullahan spends most of its time forced to serve its evil archfey master, in the Feywild. The reason it strikes this village and not some more populated area (aside from the fact that a Dullahan isn't invincible, even if it could slaughter many troops send against it) is that the Fey Crossing that leads to its master's realm is near that village. It only has, say, one week every decade or, oh, let's say thirteen years, in which to collect its heads, and then the threat is momentarily gone, but so is the chance to stop it and keep it from coming back thirteen years on.
Now, this backstory actually makes the Dullahan slightly more sympathetic (though still selfish - surely murdering 169 people for your own freedom feels like a pretty nasty trolly problem to find yourself in) but you could always make the reasons the archfey cut their head off in the first place reflect poorly on them (maybe they were trying to get the archfey to empower them to some terrible ends).
Of course, there's always the option to just have it be totally unexplained, and that will tend to push it more into the realm of horror. I might recommend going the Dark Souls route: you, the DM (and thus game creator) know the full backstory, but you could leave just the faintest hints for the players to piece together - leaving clues that the Fey have had an influence in this area throughout its history, maybe even stories about a fabled castle "that one can only travel to through a sparkling green mist" and stories about a "beautiful maiden with violet hair" lives in a "palace of bone." Maybe there are folk tales of why you should never try to make a deal with a fairy, because she'll twist your words into the worst version of what you want. And then, when the party finally confronts the Dullahan, you see that he has a lock of violet hair as a favor - and just let the players piece it together if they want to.
They key here is to build to it. Maybe more headless corpses start showing up. Maybe a friendly NPC turns up dead and without a head. If you're in Ravenloft, maybe the world itself conspires to creep you out - someone finds an old illustrated tome of folklore that has a "troupe of fools" in one image, which depicts figures that clearly are supposed to be the party, all missing their heads (or maybe the book itself is damage such that the illustration is cut off at the characters' necks.)
Now, what level do we think this should be at?
Again, CR 10 is supposed to be balanced for level 7 players in a party of 5, according to Xanathar's. The Dullahan is an inherently deadly encounter, given that a crit and a failed CON save means off with your head. That, in and of itself, should make the fight feel scary. However, there's every chance that you simply won't roll a crit the entire encounter while running the Dullahan. So, we'll want to make sure that it's still plenty scary without crits - while not being impossible (because as always, we want the party to win.)
With both attacks hitting (in melee) the Dullahan puts out about 40 damage per round, plus up to three more hits if it just uses its legendary actions to attack (60 if all hit) or with its Head Hunt, one attack (at advantage) that does 47 damage on average.
This thing packs a wallop, even without crits. So, on all hits, that comes to about 100 or 87 damage per round in phase 1.
It has a +8 to hit with the battleaxe. By this point, I think we can assume that any "tank-y" class that's going full heavy armor, sword, and board, will have splint and a shield (possibly not plate yet, as that's super expensive.) So we're looking at 19 AC for some. A dex-based melee class will likely only have gotten Dex up to 18 at this point, so in studded leather that's 16 AC or if we're looking at a monk with, say, +2 Wis, the same. A two-hander-wielding melee character who has, say, just splint with no shield, will have an AC of 17. So I think broadly, for those who are meant to be right up in melee with the Dullahan, we'll say they have an average AC of 18 (skewing up in case +1 Shields, the Defensive fighting style, or other mitigating factors come in). That means that the Dullahan is hitting only roughly 50% of the time. So we cut its average damage per round in half, which makes it around 44-50.
Let's say our melee fighters and paladins have got a +2 to Con. At level 7, on average, they've then got 60 HP. Our Monk with similar Con has 52.
So, if the Dullahan really focuses one person down, they have a decent chance of knocking a PC unconscious at least within a round.
Calculating player damage per round is a little harder. But my instinct is to say that for a tier 2 party, chewing through 135 health is going to take at least a couple rounds, and doing so twice will certainly take longer (barring a paladin getting a lucky crit or something like that.)
I would also always recommend that when running a legendary monster as a real boss, you should give them the maximum HP they can have, which for the Dullahan is 198. The mythic phase transition does say it regains only 87 hit points, and I might honor that even if we started at 198, making the second phase more frantic.
Terrain is always an exciting way to make fights more dynamic. A bridge is a natural place for a fight with a Dullahan to show up, and you could improvise some mechanics like if the Dullahan's mount charges, characters could be knocked off the bridge.
Going back to the build-up, to pull in good old Darby O'Gill and the Little People, a great monster you could use before the fight with the Dullahan is a Banshee. Like the Dullahan, the Banshee is one of those deceptively dangerous monsters, as even at only CR 4, a single seriously failed save against her wail will put a character to 0 hit points instantly.
If you want to make the Dullahan fight even scarier (if the party is too high level for it to be a challenge on its own) consider having it accompanied by banshees - maybe who arrive as part of the mythic phase transition.
There's something elemental about the Dullahan. It might be my Irish heritage, but it really sticks with me as a creepy but also super awesome monster.