Where in Eastern Europe remains to be seen. The sugar box was in Hungarian, but "Drak" is Czech, as opposed to sárkány/zomok, or the various other words forms (smok, zmei/zmaj, etc.) one would expect to find in eastern Europe proper.
@Daviot I strongly reckon this is set in the Slovak part of Czechoslovakia, between the Tatra mountains and the Hungarian border,
in awesome places like this one