Any language arts teacher will tell you that there are three elements to a fictional story: Plot, characterization, and setting. Unfortunately, setting seems to get overlooked in many cases. Often writers can put so much effort into our plotting and characterization that we neglect this third member of the "Big Three." So it only seems logical to spend a little time talking about setting here.
Simply put, the setting you choose for your story exerts an enormous influence on plot and characters alike. Think about it: Small-town life and big-city life are two very different things. So are the social attitudes and morals of 2011 as opposed to those from a century ago. Even subtle changes in our real-life setting, such as the seasons, affects how we act. Where and when you live affects how you see the world, which in turn affects your behavior. The same holds true for our characters.
Plot is also influenced by setting. True, you could tell a suspense story or what-have-you anywhere, but how it plays out will be determined in large part by the setting you choose. Suppose you want to write a story about one character seeking revenge on another, and you're torn between setting it in a modern-day big city, an Old West frontier settlement, or a space station in the distant future. Each of those settings is unique. Things that could have happened in 1880 Arizona probably won't happen in 2011 New York City. Things that might one day happen on that space station probably wouldn't happen in either of the other two places.
This makes it a two-way street. If there are certain things that you want to have happening in your plot, then you'd better pick a setting that will be conducive.
Personally, I have a tendency to set my stories in modern times, in small Southern towns such as the one in which I reside. The reason is quite simple: It's familiar to me, so I already know how it would influence my plot and characters. However, I will change that up from time to time. "In the Shadow of the Sphinx" was set in the early 1950s and split time between Hollywood, CA and Egypt. "Phobos" in a futuristic story set in on the Martian moon of the title, while "Darkest Before Dawn" went Way Back and Out West. Those settings were chosen because of the requirements of their repsective plots, which then unfolded according to the restrictions of the setting.
As you prepare your next writing project, think about the role setting will play in the final product. Philippians 4:13.--SMS