"The Splendour Falls on Castle Walls" is a short, song-like poem that was inserted into a longer poem called The Princess as a kind of break in the action. The Princess is—you guessed it—about a princess. She was obsessed with getting women into higher education (a hot-button issue in the 1800s), so she created a kind of mini-university for women with a big NO BOYS ALLOWED sign on the door. Of course, hilarity ensued when some men dressed up as women and sneaked in.
But what, you ask, does this have to do with the setting of this beautiful, song-like poem we've been thinking about? A very good question. The speaker of "The Splendour Falls" is standing in the mountains, describing the view across the valley at sunset. The light is falling against a castle, which, in the context of the story of The Princess, we're probably supposed to imagine is the location of the all-girls' university. Then, suddenly, the valley is filled with the echoes of a bugle horn!
At this point, then, the setting moves from a very traditional one for poetry—old castle, lush valley—to a more interior setting. The bugle echoes make the speaker remember old fairy tales, and soon we're transported from a natural setting to the speaker's imagination. There he imagines that he's in the magical world of Elfland (no height requirements to enter, we're guessing), but he doesn't stay there long. The poem ends up in the speaker's mind, as he contemplates how each of us might impact the world after our death.
Really, then, we have one physical setting, one mythical setting, and one philosophical setting. And hey! Look at that! There's a stanza devoted to each setting. It's as though Tennyson, in putting the poem together, really wanted to emphasize how the natural world as a setting can transport us (no passport required!) to settings both within ourselves and in myth.