Setting is created by the author’s decisions on where and when the action happens in a story. Poe creates a relationship between his characterization of the mad narrator and his location of the events.
We are told that the narrator begins his torture of the old man in the dead of night-
And every night about midnight I turned the latch of his door and opened it oh, so gently!
This gives a very sinister edge to his actions. Also, he remains in the same position for excessive periods of time whilst observing the old man-
For a whole hour I did not move a muscle, and in the meantime I did not hear him lie down. He was still sitting up in the bed, listening; just as I have done night after night hearkening to the death watches in the wall.
The fact that the narrator chooses to talk to the inspectors whilst sitting over the dismembered corpse intensifies our feeling of revulsion at the narrator’s actions and bizarre state of mind-
in the wild audacity of my perfect triumph, placed my own seat upon the very spot beneath which reposed the corpse of the victim.