The setting is placed in a kind of medieval world called Groosh. It is sort of a parallel-universe, with some important changes:
In our world people were afraid of big and mean dragons and eventually got eaten. This is now somehow completely inverted: the average size of a Pocket Dragon is about the size of a coca-cola bottle, and they aren't really mean. So eating peasants is nothing of interest for a Pocket Dragon, they are more worried about not getting spotted (eek! A lizard!!) by humans.
The Human Society is structured like in our dark middle age, there are kings and lords, knights and maidens, wizards and blackmages, just everything that is supposed to be in a 'classic' setting of the high fantasy middle age.
Most Pocket Dragons live in groups with up to 20 Dragons. They all inhabit larger buildings like castles or battle-ships (swashbuckling Pocket Dragons!) or mage towers.