How is the setting (such as the Borough & Dresden, Germany) significant in the story/plot of Extremely Loud and Incredibly Close?
I think the importance of the setting in this incredible novel lies in the way that both settings feature massive events of destruction that have the impact of shattering lives and destroying people. Of course, Oskar's home in the Borough is located very close to the World Trade Centre, and he finds that his life is destroyed when his father is killed in 9/11. But at the same time, the world of his grandfather and grandmother is similarly destroyed during World War II and the firebombing at Dresden. Both disasters are talked about and both rob the characters of people who are immensely important to them.
What the setting does therefore is to construct a parallel situation which allows the author to present us with two generations of characters who somehow have to live their lives and cope with being left behind and not having been killed. The efforts of Oskar's grandparents are paralleled with the efforts of Oskar himself, as all of them seek to find a way of living with their incredible sadness and grief. The setting thus structurally helps create this sense of parallelism.