Believe it or not, KH for the V-cast is canon. But you may say:"if it's canon, where does it takes place?" In fact, it does takes place in the timeline......after Chain of Memories, during days, and before KH2. It took place during Sora sleep. Why? Because their no where else it takes place in the timeline. It doesn't takes place before KH1, since Sora didn't have or know the keyblade. It doesn't take place during KH1 because well, you know. And of course, it doesn't take after KH1, since Malficent was killed. So of course, it happened in Sora dream, right? But, you may ask again:"How does makes it not a spinoff?" Well of course, because Sora ACTUALLY visited the dream worlds before DDD. Why? Because somewhere in the end of the game,(I remember playing this game a month ago.) Sora said "It felt like a dream." But still, you may wonder: "Why no Dream Eaters in the worlds then? Because, they don't exist in those worlds. By someway, they don't. Plus, since Sora has awoken those worlds from their sleep, it gives answers why those worlds don't appear in DDD. So, what do you think?

Well, it's a theory, a GAME THEORY.

P.S:Sorry for grammar mistakes.

I thought the official explanation was that it happens when Sora falls asleep on the gummi ship and strange creatures enter his dreams which leads to V-CAST. At least thats what the KH Wiki says about it. So I imagine it takes place during a KH1 gummi ship mission which would make sense because those things could put anyone to sleep.  

Disney developed V-Cast. While we do cover it, it is not considered canon or a Square Enix game.

Or maybe the Caterpillar in Wonderland let Sora try out his hookah which caused Sora to hallucinate the entire game.

Or maybe it's just a shit game made for people to buy and only that.

Nomura confirmed it as non-canon in an interview. I just don't remember which interview was, but it was probably from the time of Chain of Memories, as I remember the interviewer mentioning V-CAST as "[the game] being [currently] made in America" or something similar.

Or maybe it's just a shit game made for people to buy and only that.

It's not as bad if you've played. It's pretty decent.

Or maybe it's just a shit game made for people to buy and only that.

I think you need to lay off whatever funky substance you're taking.