The story takes place at night in creepy Lorraine Castle, which has presumably been around for quite a while. These days it’s abandoned, and has been for eighteen months, although we don’t know why. Apparently, the former owner, mentioned only as "her ladyship," died. Now only the three eerie old custodians take care of the place.
Where is Lorraine Castle, and when is the story set? Lorraine also happens to be a region in France where there are several castles in close proximity, but we have absolutely no reason to think that our English speaking characters are set in France. To make a long story short, we don’t know where Lorraine Castle is located. Though apparently, according to the old woman, the night when the story takes place ("This night of all nights!" [16, 23]) has some special significance. Maybe the young countess died on the same night years ago?
The castle’s interior is dark, dusty, and filled with spooky stuff. The spookiest place of all is the red room, the supposedly haunted room where the narrator spends the night. It has a tragic history, because various people have died there (we don’t get many details). In particular, something horrible seems to have happened to a timid young countess because of a failed joke her husband played. The room is also enormous, done in red and black, with plenty of large bay windows and "recesses and alcoves" (31) where darkness lingers and suggestive shadows seem to come alive. At one end is a fireplace, and at the other end is an alcove. Because the alcove is farthest from the firelight, it is particularly dark, and is the favored spot for those "living, lurking" (33) shadows that make the narrator so nervous. Definitely creepy.
The room’s creepiness is actually very important to the story, because of the effect it has on the narrator. Everything about it – its coloring, its imposing size, its history, its darkness – is perfect for inducing fear, and it does. It’s that "Fear!" which haunts the room and overwhelms the narrator. Not only is the room the arena of the narrator’s "struggle against darkness" and Fear, it is itself intimately bound up with them.