Setting is the poor relative in the fiction-writing craft family. We give character, language, voice, plot, a lot of attention. Rightly so. But setting also deserves some love.
So here are two ways to think of setting. The first narrow. The second broader.
Narrow-- character development: where your characters live. Her house or apartment. The places your character goes to have coffee or eat dinner or work. All of these are an interaction of character and setting and the setting helps reveal character. Maybe think about this in revision and use setting to develop and deepen character.
Broader picture: For some writers, in some manuscripts, setting becomes a character. This can be a very powerful and distinctive characteristic of a writer's work. From the reader’s side—they can be drawn to a certain writer because the setting creates an atmosphere. Think Philip Marlow in LA; Raymond Chandler’s noir atmosphere comes , in part, from his evocation of setting in his novels. There are many, many examples, including the many examples in fantasy and sci-fi where the worlds need to be clear and present in the story.
One way to think of setting is as a character. I know that I did this in my novel—out early next year--http://www.goodreads.com/book/show/22747808-utopia-iowa. The town of Utopia, Iowa, became a major character. I loved the eccentric people that lived there and the mystery of its past and the threat of dark forces drawn to the town because of its past. I began to think of the town itself as a character and that (I hope) helps build an atmosphere in the novel and contributes to the overall tone of the story. But it also helped me develop a connection between setting and character and plot. To me, so much of the process of writing a story comes from making these connections.
Here's an exercise on the importance of setting in a more focused way—to build character.
Describe the place where someone lives just by the details. The details that you choose reveal the character.
An obsessive mother.
A foster child.
A police detective.
A man who has separated from his wife and family but wants to go back to them.
A man who has separated from his wife and family and doesn't want to go back to them.
A high school student's room—he’s lost and partying too much.
A high school student’s room—she’s an A student.
A girl or boy who doesn’t have a place to live.
A boy and girl who are seventeen and have a child.
This could go on and on. The purpose of the exercise is to focus on how setting can evoke and develop character.