Updated: Feb 22, 2020
A: This is an excellent question and there are a couple possible answers.
If we are to take a completely literal approach to the first few chapters of Genesis, we would have no choice but to conclude that Cain’s wife here is his sister! However, it seems to me that a Jew who was writing this might not be very comfortable with this idea (see Leviticus 20:17).
There is a second approach that would see this and other elements of the Genesis 1-11 narrative as pointing to a more literary than "literal" interpretation. What I mean here is that the account would be not literal history. Genesis obviously has many literary elements whether you take it as literal history or not, but the literary approach to Genesis 4 would see it as mainly literary, and having very little to no literal historical data.
Just in Genesis 4 there are a few reasons to take the account as literary rather than literal. For instance, after God tells Cain he will be a restless wanderer on earth (Gen. 4:12), Cain is worried that “whoever finds him will kill him.” Who is he worried about? His family? If him and his family were the only people on earth, why would he be worried about someone finding and killing him. After this, Cain takes his wife, who, from the a literal interpretation, must be his sister, and he builds a whole city with just him and his sister!
However, if you don't want to accept a wholly literary interpretation of Genesis 4 and still want to make sense out of it, there is still a third option of interpretation. This third interpretation would take into account that there is no definite sense of time in the passage. For instance, considering the long lifespans in the genealogies (Genesis 5:3-32) there could have been hundreds of years between each of the events in Genesis 4. Perhaps it was a couple hundred years before Cain decided to kill Abel. This could potentially be enough time for a few generations to have been born, which would mean Cain was not marrying his sister but perhaps a distant relative. This would also possibly provide enough time to provide enough generations of people that could possibly begin a building project as large as a city. Perhaps it took a couple hundred years to finish the city.
So we have three options here as far as I can tell. The biblical writers, especially in Genesis, are often very economical with their words and leave the reader with much to think about and ponder over. The stories are constructed in such a way that we are meant to ask these kinds of questions to engage with the story. What are the Nephilim? Why does God create light before creating the sources of that light in Genesis 1? And many more possible questions. We are supposed to ponder over these questions.