The setting is the small town to which Krebs returns after the second division returned from the Rhine in 1919. It can of course be related to time, in the sense of both the historical time and the way that people and things in the twon have aged and changed and moved on since he left. It is also connected historically to the fashions of the time, the "dutch collars" and the girls with short hair, etc.
The town, or the people of the town, appear to in many ways resist change, they'd rather not hear about the war and what really happened, which leads Krebs not to want to talk about it either.
The events of the story take place mostly in Kreb's family home, as he watches people walk by, speaks to his family, etc.