Sometimes we experience confusion where the north or south is especially when we are lying down or just awoken from sleep. Do astronauts experience something similar in space? If so, how do they overcome it?
Yes - disorientation is incredibly common. Almost all astronauts suffer this to a greater or lesser degree. For the most extreme end of this, read about Jake Garn...
The preferred solution is to do nothing - and simply adapt naturally over the first few days in space, however when in space suits, in order to avoid the extra danger vomiting in a space suit can cause, dimenhydrate transdermal patches are used.
In terms of identifying where they are, the simple solution is to look out the window, however this actually tends to increase motion sickness in space (opposite to being in a vehicle on Earth or at sea, where looking out the window helps settle things) so this is avoided in the first week or so.
In reality, directions in the ISS are all relative to the main axis of the ISS, and external directions are only really relevant in terms of looking at the Earth, or tracking incoming craft.
Compass directions, North, etc are Earth based references. Once you leave the Earth they have little meaning to a person in space ship.
Think of it from a slightly different perspective. If you are standing on the moon, would East or West on the Earth help you navigate? No because you would be interested in Lunar (the Moon) directions. You can only travel towards Lunar North, etc.
The same applies in a spaceship or spacestation. Navigation is defined by the body you are on. Earth, ISS, Moon, Mars, etc.