In general mood is the atmosphere of a narrative; one can think of it as the "vibes" in the air around the characters. For example, if one attends a child's birthday party, the mood is joyous, loving, and cheerful. This mood is conveyed by the tone of the voices of both the adults and the children; the excited actions of the children are also an indication of mood as are the decorations.
To convey mood in literature, an author carefully selects a setting that reflects the atmosphere that he/she wishes. Images and carefully worded phrases connote the mood,too. As an example, one master of mood is Edgar Allan Poe. In the opening paragraph of his "The Fall of the House of Usher," he uses dark imagery to suggest mood:
During thw whole of a dull, dark, and soundless day in the autumn of the year, when the clouds hung oppressively low in the heavens, I had been passing alone, on horseback, through a singularly dreary tract of country; and at length found myself, as the shades of the evening drew on, within view of the melancholy House of Usher. I know not how it was--but, with the first glimpse of the building, a sense of insufferable gloom pervaded my spirit.
Poe's choice of words (in bold) and imagery connotes foreboding, gloom, isolation. No reader can possibly miss this mood as painted by such an artist.
The "mood" in literature is the feeling that the author intends to instill within the reader. Mood is inspired by many elements of literature. Character development, setting, style of writing, and syntac are but few of many ways that the mood in a work can be conveyed. The mood of a work is dependent on both what the author wants the reader to feel and what the reader actually does feel. The understanding of poetry and other works of literature are dependent on the mood created in both reader and author, and their shared experience enhances a work. For example, in some works, the mood may be Romantic, in that both the character and writer share the Romantic sensations being articulated. Yet, in another work, the mood might be anti- Romantic, where the mood might change from articulating a Romantic setting to one that is the opposite.