There are several aspects of the setting that contribute to the suspenseful and eerie mood of "The Cask of Amontillado."
First, the story opens in the midst of a festival. The narrator notes that daylight is quickly fading, and there is a "madness" associated with the festival atmosphere. Fortunato arrives dressed as a jester, playing the part of a fool. This heightens the tension, as the narrator has already indicated his desire for "revenge" upon the man. Because of the festivities, Fortunato has already been "drinking much," which likely impedes his judgment.
Montresor lures Fortunato into his family catacombs, which significantly increases the sense of imminent danger. The men continue a steady descent into the bowels of death:
We passed through a range of low arches, descended, passed on, and descending again, arrived at a deep crypt, in which the foulness of the air caused our flambeaux rather to glow than flame.
Montresor has completely isolated himself and Fortunato, and there is precious little oxygen to share. Consequently, the torch fails to emit light, symbolizing the death of hope.
As the men continue forward, the walls are "lined with human remains," which are piled high into the vault. Still, Fortunato is so singularly focused on the Amontillado that he ignores the increasingly morbid signs of danger all around him.
The setting's elements of darkness and mystery enhance an increasingly eerie mood as the conflict between Montresor and Fortunato intensifies.