What does internal setting mean?
The question I have to answer asks, "Does the local setting mirror or juxtapose the internal setting of the protagonist?" I do not know what internal setting means in this case.
The term "internal setting" is likely a creative one by your instructor, asking you to consider a characters interior world as a type of setting.
In this case, your instructor is probably asking you to compare the physical setting in which the character finds himself/herself with the internal situation of the character.
Here is another way to phrase the question: How do the character's thoughts and feelings parallel or relate to the external setting in which we find the character?
An example of a parallel internal and external situation might be one where a character is searching for a lost child. The character has been looking all over the city and comes to a crowded market. While at the market, the crowd is rowdy and loud, but a small child sits quietly off to the side of a food cart, forlorn and clutching a doll, crying. Amidst all the clang and clamor of the market this child is an emotional symbol for the protagonist's internal turmoil, alone in the crowd, clinging to something that isn't much more than an idea.