Dickens's "The Signal-Man" takes place in a remote train signal box. The box is surrounded by a dripping wall of jutting stones that blocks out the sunshine and sky almost entirely. In one direction, the wall continues, and in the other, it leads to a tunnel whose architecture is notable for its gloominess. One must descend to the box along a steep, zigzaggy path. Inside the box is a fire, a book for recording entries, and a telegraphic instrument.

The atmosphere the setting of the story creates is one of gloominess and isolation. When the specter of danger arrives at this lonely outpost, the signal-man is alarmed. However, as the specter gives him no idea of what danger is coming, he cannot warn people. Therefore, he lives in anxious isolation, knowing that the specter means impending doom but not knowing what shape the doom will take. The signal-man's lack of connection with the outside world enhances his alarm and his sense of futility in the face of danger.

The setting of "The Signal-Man" is a dark and isolated site haunted by a sinister presence, representing industrialization.

In the exposition of this ghost story, there is an atmosphere of isolation, gloom, and anonymity. After the narrator calls to the signal-man to point out a path of descent from the steep cutting overhead upon which he stands, he descends to "a solitary and dismal . . . place . . . . On either side, a dripping-wet wall of jagged stone, excluding all view but a strip of sky."

To the narrator the train tunnel seems like a "great dungeon." The perspective on one end is that of a "crooked prolongation of this great dungeon." On the other, the gloom ends with a shadowy "red light" and a dismal entrance to a black tunnel, the construction of which seems "barbarous, depressing, and forbidding." Because so little sun strikes this area, an earthy, deadly smell emanates from the earth and stone.

This is a lonesome place and there is a sense of existential isolation. In addition, there is an eerie atmosphere and air of mystery created by the odd behavior of the signal-man who possesses a watchfulness suggestive of a person who has seen a specter or other form belonging to another world.  

"The Signal-Man" takes place in a signal box somewhere in England. From the narrator's observations, the reader learns that the signal box is accessed via a "rough zigzag" path which passes through a cutting (an open passage for a railway). This cutting is very damp and dark and rarely receives any sunlight, as the narrator comments: 

So little sunlight ever found its way to this spot, that it had an earthy, deadly smell.

Beyond the cutting, the box itself is an office which contains the basic items needed to carry out this occupation, including a desk and a fire. The box is noted for being small and dark. 

By describing the setting in this manner, Dickens creates a gloomy and oppressive atmosphere. Moreover, by employing certain words and phrases, like "I had left the natural world," Dickens suggests that the signal box is its own world, distinct from the world above in which people, like the narrator, exist. By creating this other world, Dickens adds to the supernatural element of the story while also heightening the reader's sense of fear.