Where It All Goes Down
"A Dream Within a Dream" contains two stanzas and two different settings. Well isn't that convenient? We don't know a whole lot about where the events of the first stanza take place as the speaker doesn't give us much in the way of, ahem, details. There's a woman, that's for sure, but we don't learn anything about her. Plus, the stanza is chock full of confusing musings that don't exactly root us in a firm reality. Everything's happening in the speaker's head. The focus, after all, is on what he thinks—not where he is.
The second stanza is a little more concrete. There's an ocean, a "surf-tormented shore" (13), golden sand and a ton of noise. These details are richly symbolic. The surf-tormented shore reminds of the speaker's own torment at not being able to completely grasp the sand, which is itself a symbol of his attempts to prove that what is in front of him is real and not just an illusion. The "roar" of the sea faintly recalls the speaker's busy and "noisy" musings from the stanza and also anticipates the monstrous and "pitiless wave" (22) that keeps swallowing the grains of sand. This wave in turn reminds us of the power of fantasy and illusion to prevent us from determining what is real and what is not.
If you were forced to explain the relationship between these two settings, you could say that the second stanza is a more literal or "external" version of the first. The chaotic, tormented ocean reflects the speaker's frustration in the first stanza, just as the speaker's grasping of the sand is an attempt to confirm or disprove his and the woman's thoughts about life being a dream.