Orwell came up with the setting for his novel after seeing a young boy whipping a carthorse. As he writes in his Preface, "It struck me that if only such animals became aware of their strength we should have no power over them, and that men exploit animals in much the same way as the rich exploit the proletariat" (source). What Orwell did was to take his understanding of the Russian Revolution and the rise of Stalinism and to condense it onto a rural farm in England.
Yet the image that initially captured Orwell’s imagination – the boy whipping the carthorse – shows that it was something about the cruelty of man to beast that drew him to the farm. Animal Farm (which is initially called Manor Farm) is not a calm, pastoral place; it is a place of brutality and injustice.
In general, the farm allows Orwell’s allegory to work out pretty smoothly. The different animals come to represent different members of the proletariat (working class) or the Russian communist regime, and Mr. Jones represents the old Russian Tsar Nicholas II. The Windmill project stands in for Stalin’s Five-Year-Plans, and his goals to jump-start Russian technology and industry. We won’t take you through all the details here (see "Symbols, Imagery, Allegory" for the full lowdown), but the point is that Orwell picked the setting of the farm because it would work well as an allegory.
That said, the farm is not just a veil behind which lies communist Russia. Though the story is allegorical, one can’t simply pull back the images of Animal Farm and find the Stalinist state to which it alludes. Orwell gives the novel its own coherence, and the setting, like the book itself, can stand on its own. Details like "the birds jumped on to their perches, the animals settled down in the straw, and the whole farm was asleep in a moment" (1.20) serve little allegorical purpose. Their goal is to make sure that the setting itself has a sense of completeness, if not of realism.
One last question: why is Animal Farm an English farm? We’ve noted in other sections that Orwell was not just criticizing Stalinism. He was criticizing the myth of Stalinism that had spread to the West, a myth believed by intelligent people even though it was paper-thin. The "myth" that Orwell attacks in Animal Farm didn’t just exist in Russia. It was believed by many Englishman, and it was a myth, as Orwell saw it, which needed correcting.