Even though this special aired last, it chronologically should precede the first episode of Season 3. The main keys are that Merla is not seen or spoken of, and that Cossack runs in fear in the last episode of the show while he shows no signs of cowardice in the Fleet of Doom special. Another piece of support is that Haggar can make herself beautiful in the episode about the Cadmium Flower but no one knows it, though she is seen later doing the same in part of the Fleet of Doom special (though the glamour is different).
Jeff: Alright. Let's show 'em what two Voltrons can do!
Keith(as he's standing up to the nightmare creatures Haggar is throwing at him in the Dream Dimension): I've just got to stand up to them! They're not even real! They can't control me... I control them!