O. Henry chose Greenwich Village in Manhattan because it was, as it still is, an art colony. He needed a setting where there would be a lot of painters. The plot is based on the idea of a man painting an ivy leaf on the side of a building in order to encourage a sick girl to want to hang on to life. The author did not want to have only one painter in the vicinity because such a character would be too conspicuous and could give the reader the hunch that that person was going to paint an ivy leaf on the wall of the neighboring building. But since it is an area full of artists, including Susie and Johnsy, that possibility is somewhat camouflaged.
Once O. Henry decided on setting his story in Greenwich Village, he used his powers of description to make the colony stand out in the reader's mind.
IN A LITTLE district west of Washington Square the streets have run crazy and broken themselves into small strips called “places.” These “places” make strange angles and curves. One street crosses itself a time or two. An artist once discovered a valuable possibility in this street. Suppose a collector with a bill for paints, paper and canvas should, in traversing this route, suddenly meet himself coming back, without a cent having been paid on account!
So, to quaint old Greenwich Village the art people soon came prowling, hunting for north windows and eighteenth-century gables and Dutch attics and low rents. Then they imported some pewter mugs and a chafing dish or two from Sixth avenue, and became a “colony.”
Susie and Johnsy live there because rents are cheap and also because they like being among other artists. The cheap rents mean the buildings are deteriorating, but also that the absentee owners don't much care what the tenants do to them--or in them. The artists create a bohemian atmosphere. The story could only take place in such a "colony." The artists and their informal lifestyle, along with the deteriorating buildings full of second-hand furniture, create the atmosphere.
Old Behrman is part of that atmosphere. He belongs in this setting. He is a heavy drinker and a failed painter. He would be out of place elsewhere--and he might have a hard time finding any other place to live outside of Greenwich Village with his bad habits and his lack of a dependable income. He makes the little money he lives on by modeling for other artists. This brings him logically in contact with Susie and Johnsy, so it is easy for the author to persuade the reader that this crotchety old man, who has nothing much to live for, would take an interest in them and might risk his life to save Johnsy. Since there are so many artists trying to survive in this neighborhood, it is statistically inevitable that many of them would be failures. Behrman happens to be one of them. He still dreams of painting his masterpiece--and his masterpiece turns out to be a trompe l'oeil ivy leaf on the side of a brick wall.
Susan's desperate efforts to complete a series of drawing while caring for her sick friend help to evoke the artistic atmosphere. It shows that creative work is going on in one part of the colony and suggests the presence of a lot of other struggling artists nearby. We can't help feeling sympathy for these little people who have nothing else to live for but their dreams of recognition and success.