"setting" - where the house is set/located; its surroundings It actually should be "one-bath cottage". A smaller house (cottage) is also located on the property. It has one bathroom. "in-laws" usually refers to father-in-law and mother-in-law, but other in-law relationships, strictly speaking, are included in the meaning.
I think this is confusing because it's not written in complete prose. When writing property descriptions, there is often a word limit, which is why they've missed a lot of words out.
As mentioned, "1 bath" should be written as "one-bath". This can be confusing for a non-native speaker of English, but it does make sense, as do the following examples, although they can 'feel' cl