There are three important things about the setting:
Let's take a closer look
Looked at one way, the future is kind of awesome. Instead of brushing her teeth, Tally just takes a "tooth brush pill" (1.9); and instead of slathering on sunscreen, Tally just uses a "sunblock patch" (18.45). Once you add in solar-powered hoverboards and bungee jackets and safety fireworks, then we want to go to there.
Oh, and of course, there's the pretty surgery; and the surgery that makes the Specials into superhumans. That's sort of the downside of the future. (Also, they don't have working roller coasters, so there's that.)
One benefit of placing this story in the future is that Westerfeld can talk about issues that we face today, but make them more extreme. So, instead of complaining about pretty people looking down on less pretty people in a school cafeteria, Westerfeld comes up with a version of the future where pretty people and ugly people aren't even supposed to mingle. By reading about an extreme situation, we can see the issues more clearly. (Or at least, that's the theory.)
Also, by placing this story in the future, Westerfeld can comment on our own present by having characters talk about the past. In many ways, we're like the Rusties, who provide a clear contrast with Tally's civilization: we/the Rusties have cars and use oil, Tally's civilization use non-oil power to fuel their hovercars and hoverboards. We (and the Rusties) have big cities that are clearly connected and not too much wilderness; whereas Tally's world has cities that are smaller and not connected to each other so closely and lots of wilderness.
Which brings us to our next point:
The city vs. wilderness issue is so big we've devoted a whole theme to it (check out "Man and the Natural World"), and even threw in a quiz. (That's fun, right? Everyone loves quizzes.) But we've still got more to say.
For one thing, the city where Tally is born has real clear divisions between the types of people and where they live. There's Uglyville for uglies; New Pretty Town for new pretties; and Crumblyville for older pretties (older pretties are called crumblies, which is what we're calling our parents from now on). And then there's Special Circumstances, the headquarters for the Specials. The way that the city is organized tells us how the society wants to be: with strict divisions according to the operation.
By contrast, the Smoke can't really organize itself that way, since everyone is ugly. When Tally is there, she gets used to seeing crumblies in a way that she wouldn't in the city: "Only a couple of weeks later she was much more used to all the different kinds of faces that age created" (29.26). So the Smoke doesn't divide people according to any class divisions. As Shay notes before they go to the Smoke, "It's not like here, Tally. They don't separate everyone, uglies from pretties, new and middle and late" (11.38). In that way, the Smoke seems more unified and coherent.
We also see that the city is a lot more managed than the Smoke and the wilderness when it comes to, well, the wilderness. Take the river, for example, which is radically different near the city and away from the city:
Tally had lived her whole life within sight of the river. Slow-moving and dignified, it defined the city, marking the boundary between worlds. But she'd never realized that a few kilometers upstream from the dam, the stately band of silver became a snarling monster. (7.31)
So that's a clear comparison between the city (dammed and controlled) and what's outside the city (undammed and wild). Or look at the trees, which are very, well, wild, in the wilderness:
The forest to either side was a black void full of wild and ancient trees, nothing like the generic carbon-dioxide suckers that decorated the city. (7.33)
You just know that those "carbon-dioxide suckers" inside the city have to be carefully managed. They might even be genetically engineered like the white tiger orchids (see "Symbols" for more about those beasts). While the wild trees are "wild and ancient," a significant part of nature and history, the managed trees just "decorate."
Or let's put it this way: the city is very safe—firecrackers that don't burn; jackets that protect people from falling, and so on. City kids, "spend their whole lives in a bubble" (30.76), never knowing how dangerous the real world is. By contrast, Tally comes to realize that the wilderness is "Dangerous or beautiful. Or both" (18.27).
That danger and intensity in the wilderness is both exciting but dangerous for Tally: "Life was much more intense than in the city. She bathed in a river so cold that she had to jump in screaming, and she ate food pulled from the fire hot enough to burn her tongue, which city food never did" (28.4). And maybe that's the big difference between the city (safe, not intense) and the wilderness/Smoke (intense, dangerous).
And our last big difference is the way each setting deals with stuff. As Tally remarks when she needs a new sleeping bag, in the Smoke, you need to pay for stuff. This is not at all what it's like in the city. When Tally comes to the Smoke, Shay notes that, "In the Smoke, things don't just come out of the wall" (23.38)—which probably means that, in the city, things do come out of the wall.
In the city, no one has to save up to buy their hoverboards. But in the Smoke, people save and trade:
By now, Tally understood that nothing in the Smoke ever lost its value. Nothing was discarded or given away just because it was old or broken. Everything was repaired, refitted, and recycled, and if one Smokey couldn't put it to use, it was traded to another. (28.9)
On one hand, maybe this is another way of showing us that the Smokies are more connected to the environment: hey, look, these guys recycle and reuse. But on the other hand, it also makes the Smokies look a little more vulnerable. When you live in the city, you can just order up a new blanket whenever you need one; but in the wilderness, you have to take care of that blanket or freeze.