This is a commonly used expression especially in academia (school and universities) mainly used in questions or assignments.
When you are asked to identify the setting of something (usually a story), it expected that you give an account of where and when the story or the given account takes place. You might be expected to analyse the historical context or the background that is provided. In this case, you should explain what the setting is doing, what its function is and what it means when taken into consideration with the characters.
Here you can also find a video where it explains how to identify the setting of a story by finding key details.
When identifying the setting in a story, think also about how the author is manipulating time and space, what techniques he or she is using.
Hope this was helpful!
