Everything is normal, but from a dog's perspectiveEdit
Courage believes that his owners' farm is in the middle of nowhere, but that is because they are too old to walk him. Most of the monsters he encounters are just normal people, but are seen as strange, terrifying monsters. Also, during just about every episode, his owners seem to react very little to the "monsters," furthering evidence that there is nothing out of the ordinary that is occuring. For example, in one episode, a giant "vulture" (neighbor) kidnaps Muriel to make her babysit her "chicks" (kids).
Courage is CerberusEdit
Courage is a scared dog with one goal in life: do whatever he can to protect his masters (the kind Muriel and the grumpy Eustace who hates everyone and everything) from all the oddities and evils that plague his home in Nowhere. No one is really sure where Nowhere is. All we see of it is that its a barren, hellish wasteland. Whenever the monster of the week appears, we see Courage saving Muriel and protecting Eustace's house from being destroyed, despite it being pretty worthless to begin with. Muriel always see Courage with another head or Courage expresses his emotions or warning messages by altering his body, giving him multiple heads.
Courage (Cerberus) is a guard dog that stays in Nowhere (Hell) to protect his home, keeping mankind (Muriel) safe from the evils of the Underworld (Le Quak [greed], Naughty Fred [murder], Katz [hate], ect.). His master, Eustace (Hades) will rule over and hate all that is Hell.