The murder takes place at a time of great merrymaking - a carnival. Does this make an effective background for the narrative?
In addition to the drunkenness and distractions that the carnival provide for cover of the crime, Montressor also mentions that he chose this night because his house staff, whom he doesn't trust, will not be around. He tells his staff that he will be gone all night at the carnival, knowing, so he says, that his staff will take this as their queue to take the night off since he will never know. This leaves his estate empty so that not a soul will notice that he has brought Fortunato there to do his evil deed.
Yes. The setting of the carnival. After all, Montresor is going to murder him in a very hideous way, yet far above them people are having a merry time. Montresor likely picks this time to pull off his plan because he knows Fortunato will involved in the merrymaking and a little drunk. This will make him more susceptible to his plan. Also, with all the entertainment going on, it will make it easier for him to lure Fortunato away without a lot of attention.
Symbolically, Poe uses the contrast between the fun outside and the dark deeds inside to demonstrate that the most secret wishes and desires of man's heart are often concealed by a false image - like a mask at a carnival.