Pixel the Cat absorbs the moonlight into his fur & distributes that light all around the caves in his concealed house using some kind of magical generator that's hooked up to his tail.
Alright, that's kind of hard to believe, even for me... (Falcon facepalms self)
However, in other theories on where the light comes from, there's a small possibility that Misery, Jenka, or Ballos has cast the Instantum Illumina* spell on the entire cave system.
*Another Shadowgate reference, "To bring the sun from far to near, light is what the darkness fears. ~Instantum Illumina"