The setting of a story is composed of three distinct pieces:
The setting of a story can have a huge effect on how the story turns out. For example, the story No Promises in the Wind can only take place if there are a very specific set of circumstances going on for the characters to react to; these circumstances are all occurring during the Great Depression in the United States. There are a few other time periods and places where similar conditions were in effect; the story requires this specific setting for the events to make sense.
Setting is often conveyed through the use of imagery or sensory language, and it can greatly affect the atmosphere or mood of the story.
Many good writers will usually reveal the setting subtly through the details of the story, rather than listing them up front.
EXERCISE: Try to create a story that takes place in a specific setting, but DO NOT use the name or time within the story. Reveal the setting to your readers through your use of details within the story.