When thinking about characters, we always think about the protagonist and antagonist, love interests, sidekicks, and other people who play major or minor roles in our story. We seldom think of the forgotten character: setting.
We think about setting in other ways. We consider the place and time as part of the framework of our stories. But a good setting does more than provide a stage where the story takes place. A good setting affects the story in all the ways a character does by providing conflict, plot elements, and all the emotions that accompany a relationship.
People react to our surroundings in complex ways, just like we do our personal relationships. We feel differently about the town where we grew up than we do about the places where we live later. And those who moved around a lot, for example in a military family, are affected by the lack of a real home town as much as the lack of a long-term childhood best friend.
A story set in say, Chicago, is going to be different than the same story set in Miami. The main plot points may be identical, but the landscape, the attitudes, the priorities, and the weather are different. All of those differences affect the human characters in the story.
The same is true of time. San Franciscans reacted to their surrounding differently in the years just before the 1906 earthquake and fires than they did during the dot com boom or at the height of the AIDS epidemic.
All of this holds true as well in fictional worlds. The hobbits of The Shire are not the same as the hobbits of Bree. They have different concerns and are affected by their environments in very different ways.
When setting your story, think about how the time and location affect your character. It's one thing to to mention landmarks and other elements that set up the location. Those are very important. But equally important, and maybe more important, are the ways your character interacts with the other influences of a location. Research (or create) the outer elements of the location, but also look at the inner workings. What do the people think about? How do local politics and trends affect the way people live? How does a city's history affect the attitudes of its current residents? How does your main character react to his surroundings? Is your character a local who shares the inner feelings spawned by the place, or an outsider who finds the town foreign and has to deal with the shock of a different culture, or a newcomer who wants to fit in but has to fight the conflicting ideals of where he is from and his new town?
Treat time the same way, and consider not only the timepoint of the actual story but the time when the human characters were raised. Consider generational differences in attitudes, speech, and ideals and the problems that arise when those differences conflict with the human character's sense of self and how he fits in with the world.
Where we are, and when, are among the most powerful influences that tug at us as real people. The same is true of the people in your fictional worlds. As a result, time and place affect the emotional stories of your human characters as well as the external plot points.
Setting is more than the stage. It's a real, breathing, living character that pervades every aspect of your story.