Here the use of Conditional is quite logical I think. You don’t really know if the story is true or false, so that’s why you have to use this tense.

It’s not mandatory, you can also use indicative (passé composé/passé/sometimes present).

It usually means you’re really not sure, or you don’t want to assume it’s true, just say what the legend says so it’s especially relevant if you say “according to…” or “if we believe the legend…“