Ask yourself: What if?
Your environment sets boundaries for your characters. These limits aren’t any more confining than the ones we live in daily. They’re just different and can be used to greatly enhance a story.
If you are writing science fiction, what physical settings or laws are different or exaggerated? Is there space travel? If so, how does it work? Warp speed in Star Trek gets you to a distant planet at a different speed than a Star Wars hyperdrive. These decisions make the difference between going from “one end of the galaxy to the other,” as Han Solo once bragged, and the entire Voyager series, in which the plot was centered on a near-hopeless trip across the galaxy back to Earth.
If you are writing fantasy, what type of magic is used in the story? Is it subtle mind-play or are their thunderbolts from heaven? Magic that comes from within makes different characters and plots than the type that requires an external source like a book or a deity.
Is the setting restricted to a city, a planet, or an island? Even in a restricted setting, figure out how much of it your characters know. The span of Middle Earth (from the Shire to Mordor) was around only one thousand miles, yet there were many secrets hidden in the mountains and forests.
What about the function of time? It is easy to underestimate how our day and night cycle dictates our lives. What if day and night last for thirty-six hours each? What if they last only six hours each? These determinations are as important as weather and climate. The use of extended seasons is successfully used in the Game of Thrones series, where winter has been coming for many years and has been referred to having lasted for ten years the last time it came.
Social settings are equally important. Who has power in your world? Decide whether this group is economically powerful, politically powerful, or both. What groups exist? Is there one that is revered as having a higher status? Are they the ones who are powerful? If not, figure out why they are set apart.
The economy shapes the culture. A single currency unites a society in a way that trade doesn’t. When you figure out how the currency works to sustain a livelihood, you’ll more easily see the kinds of business, banking, and crime that develop on your world.
The Force of Nurture
Setting is one of the most overlooked elements in a story. As a reader, I want to know how the characters I care about are shaped by their environment. If people can have physical, social, and genre-specific traits that identify them, then the spaces and times they occupy should as well.