Yes, this book is set in a graveyard; that's what puts the “Graveyard” in The Graveyard Book. To get to the graveyard, all you have to do is go to Old Town, and walk up the hill. In addition to being the final resting place for “some ten thousand souls” (1.88), the graveyard is a nature preserve. By day, it’s a natural paradise; by night, it’s clothed in mist and bathed in mystery. And by night, the graveyard folk come out to play…
Most of the time, it feels like this novel could be taking place hundreds of years ago, because the ghosts in the graveyard died long ago. They talk and act like they're from the 1800s, or the 1600s, or even longer ago. But little hints let us know we’re still in the 21st century: Scarlett talks about cell phones, and schoolyard bullies take videos of their victims. We know that the digital age is exploding around Bod, he's just totally separated from it.
For Bod, the graveyard is both prison and paradise. He’s the pet of the graveyard, the living boy who brings change to those who thought they could never change – the dead. He has teachers, food, clothes, reading material, guidance, discipline, and companionship. He has all the necessities, plus adventures galore. On the other hand, he desperately wants to mingle with the living and share in all the living world has to offer.
But, because Bod is still being hunted by Jack Frost and the Jacks of All Trades, the graveyard is the only safe place for him (as he’s told again, and again, and again). Bod does leave the graveyard from time to time, but when he leaves, he usually encounters danger.
The graveyard is Bod's childhood home. At the end of the book, he leaves the graveyard for good. This is a signal to us that Bod has grown up. It's time for him to leave home and start a life of his own.