The context of the story is that a civil war is happening between the Republicans and the Free Staters in Dublin, Ireland. A civil war is a horrible thing. Any war is horrible, but a civil war often pits one family member against another family member. That's exactly the case with "The Sniper."
The setting of the story helps establish the context of a brutal brother against brother civil war for a few reasons. First, the location of the story is Dublin, Ireland. That country is no stranger to violent outbreaks. Whether it has been war or IRA terrorism, Ireland has been a hotbed of violence in the past. By placing the story there, O'Flaherty gives it credibility.
The rest of the setting is squarely focused on the early morning hours above the war torn streets of Dublin.
Around the beleaguered Four Courts the heavy guns roared. Here and there through the city, machine guns and rifles broke the silence of the night, spasmodically, like dogs barking on lone farms. Republicans and Free Staters were waging civil war.
The description occurs in the first paragraph of the story. It's stark, depressing, and heavy. The story doesn't begin with a relaxed chat among friends. It begins on a dark morning above war torn streets with a sniper hunting prey. That setting immediately tells the reader that this will not be a happy story.