This is a great question. The use of setting is very important in the book for one key reason.
The idea of a farm connotes equality. A bit of context is important here. The Soviet Union enforced something called collectivization. The goal was to consolidate individual landholdings into collective farms. The leadership, namely, Stalin believed that this would increase food for all. Hence, this form of communism (agriculture of the people) was intended to bring equality and productivity.
This discussion is the essential background for the book, because Animal Farm is an allegory of what was happening in the Soviet Union.
Therefore, the setting of Animal Farm shows clearly that setting of the farm, far from bringing equality, brought a shift of one power to another power. In other words, when the pigs took over, they were just like Mr. Jones. In fact, they were worse. The lowest point was arguably the massacre of animals that took place under Napoleon. Napoleon's desire for power and greed turned what was supposed to create equality into a regime of fear and oppression.
In light of this, the setting of the farm is the perfect backdrop by way of contrast. The idyllic setting of a farm shows what happens when there is greed for power.