Eudora Welty said, "Every story would be another story, and unrecognizable if it took up its characters and plot and happened somewhere else... Fiction depends for its life on place. Place is the crossroads of circumstance, the proving ground of, What happened? Who's here? Who's coming?..."
Lori Handeland has a great article on setting. Your setting can influence your story. For instance if setting my story in a graveyard might have a completely different feel than if I set it in a school.
I set John Dunham's Diary in 1889 in Dublin, Ireland. I have never been to Ireland, so I had to do a ton of research on the area. I, also, had to research things like weather patterns, churches, dress and customs for that time. I learned so much about the era, I almost felt as if I were there. In a way I was through the eyes of my character. That is what your reader wants to feel when they read your story... They want to feel as if they are there with your character, even if the place is fictional. That is your goal when creating a setting- Make your readers think they can go visit that time and place through your story!