First published in 1981, "Cathedral" is set in the days when the switch from black and white to color television was in its early stages, and when cassette tapes were a cutting edge technology. The basic setting of the story is a middle-class home somewhere in New York, over a single evening.
In a story called "Cathedral" one might expect setting to be a little more complicated than that. It is, but not by much. After lots of drinks, a huge meal, and some marijuana, an ordinary living room is transformed into what could be considered a scared place, kind of like a cathedral, but one where the people in it are worshiping only each other. When Robert and the narrator draw the cathedral together in front of the narrator's sleeping wife, something amazing is happening, something that isn't necessarily visible to the eye. When the woman wakes up, she can't quite process what she sees. Robert has his hand over her husband's hand, and the two of them sitting on the floor drawing on a paper grocery bag.
Soon after she opens her eyes, the narrator closes his, but continues drawing, with Robert's hand tight around his. To the implied reader the narrator exclaims, "It was like nothing else in my life up to now" (3.45). Perhaps the experience is so amazing because the narrator is able to find a way to communicate with Robert not only without words, but in a way he never imagined before. He's amazed by the process, but also by the intimate connection with Robert. In terms of setting, the second to the last line tells us so much:
My eyes were still closed. I was in my house. I knew that. But I didn't feel like I was inside anything. (3.49)
For the narrator, the literal setting of the story, his home, is not his problem. Rather, he is trapped by routine, by monotony, and by his own limited vision. The quoted moment, for however long it lasts, is a description of his freedom from those aspects of the setting of his life. He doesn't just feel like he isn't inside his house, but also like he isn't inside himself.