John Donne famously declared "no man is an island." By this he meant people live in and are influenced by their communities. Likewise, one could also say "no story is an island." Stories exist in a definite place and time in history. Even if the story is fictional, its characters have been influenced by a number of factors, and we cannot understand the story unless we understand those influences.
In literature, these influences are collectively known as the story's "setting." Specific elements of the setting include geography, which describes where the story happens; historical period, which tells when the story happens; and culture, which explains a number of things, including how the characters relate to one another and what they believe about life (and the afterlife). These elements help readers understand why events transpire and characters behave as they do.