what does "settled him down another notch"mean？
It was morning, he reassured himself. Only a dream, and now the sun streamed through the terrace doors and sprinkled white stars on the water. Everyone in Bluff House remained safe, secure. Abra had already gotten up, started the day.
Everything was fine.
He pushed up, saw the dog curled in her bed, one paw possessively over a toy bone. For some reason the sleeping dog settled him down another notch, reminded him reality could be just as simple as a good dog and a sunny Sunday morning.
He’d take the simple, as long as it lasted, over the complexities and miseries of dreams.

Question

what does "settled him down another notch"mean？
It was morning, he reassured himself. Only a dream, and now the sun streamed through the terrace doors and sprinkled white stars on the water. Everyone in Bluff House remained safe, secure. Abra had already gotten up, started the day. 
Everything was fine. 
He pushed up, saw the dog curled in her bed, one paw possessively over a toy bone. For some reason the sleeping dog settled him down another notch, reminded him reality could be just as simple as a good dog and a sunny Sunday morning. 
He’d take the simple, as long as it lasted, over the complexities and miseries of dreams.

Answer

"notch" means "level" in this example. So the sleeping dog settled him down to an even lower level than he would otherwise have been at.

I may be wrong in the exact definition but notches are marks made with a knife in wood, to record a number or a level.

Maybe someone would measure out notches on a long piece of wood to use to measure the depth of water, or as a way of keeping count of something.