This story is set in a cafe late at night—or, more specifically, at a little after two o'clock in the morning. An old man sits at a table in the otherwise empty terrace of the cafe "in the shadow the leaves of the tree [make] against the electric light." For the old man who is alone and suicidal, the cafe terrace represents (as the title of the story suggests) a clean, well-lighted, and pleasant place to sit and drink.
The predominant themes of the story are loneliness and despair, as well as the absence of meaning and purpose which often goes hand-in-hand with them. The old man who sits at the table is lonely and—as indicated by his reported suicide attempts—despairing: without hope. The older of the two waiters is likewise lonely and (although not to the same degree) also seemingly without much hope.
The setting of the cafe reflects the loneliness of these characters in part because, except for the old man and the waiters, it is empty. This impression of emptiness and loneliness is also compounded by the time of day. Two o'clock in the morning is a very quiet, lonely time. Everybody else has gone home, and nobody else (except for the passing soldier and the girl) is awake yet.
The light in the cafe is also an important aspect of the setting and is described often throughout the story. The light symbolizes a source of solace. Indeed, the older of the two waiters says that he likes to stay late at the cafe to be with "all those who need a light for the night." The light is a the solace that the lonely characters rely on to subdue their despair.