"caves called the Dragon's Den"
These caves do exist. They are, as Gaiman says, under Wawel Hill in Krakow, a large city in Poland. Their name in Polish is "Smocza Jama" and legends say they are the lair of the Wawel Dragon.
The caves go 270 metres into Wawel Hill, although only the first 81 metres are open to the public as a tourist attraction.