There is no master plan. Ballos killed people out of madness, and his sister sealed him away inside the island. I can only assume the island was lifted from the ground as a means to keep Ballos' evil presence from warping the minds of other human beings on ground-level.
The making of the crown (Which I suspect happened after the island rose, as there's no reason for it in any other time period, and Misery would have likely had her neck snapped if she asked before hand), could very well have been a means to prevent the evil presence from making everything on the island go insane. Rather than fully surrounding the aura, his evil presence would instead only be focused upon the single point, or "The Demon Crown". Even so, the rest of his aura merely would have shortened it's extensive grasp on the island, only affecting the inhabitants of the "Sacred Realm".
At the out most point of Ballos' aura would very well have been the Core, and the lowest level of the Gaudi breeding grounds. The Core, now, would be another point of Ballos' aura, 'absorbing' it as to prevent the whole island from going insane.
Upon the time that the Core was moved to the top of the surface palace, the route between Ballos and the core had lengthened. In this case, the egg core would have been hit with extensive force, driving the dragons mad; the only two fully-developed dragons being the eggs inhabited by the Dragon Sisters, who went berserk and tore the whole place apart.
By every means, Ballos' magic had a mind of it's own, simply fueled by the memory of it's first sudden outburst of killing everyone he knew and loved. After the core as destroyed, the mere pressure of Ballos' aura began to pull the island to the ground, solely through the weight of Ballos' own burdens.
Oh but hey, Ballos' knew it was his fault, and that's why he wanted you to kill him. His last shred of sanity kept him from killing you instantly; but after killing his body, his magic merely kept it alive.
Upon killing Ballos once and for all, the walls collapsing are merely his magic and memories trying to drag you down to hell with them, at no avail. The pressure on the island was released, and the island stopped falling. The end.