England, Tennyson's Mind, and the Nineteenth Century
Things get a little tricky in the setting department because Tennyson jumps all over the place. Let's see if we can find Waldo in this picture:
First and foremost, the poem physically takes place in England. From the menacing yew tree in an English cemetery to the dock where the ship bearing Arthur's body comes to shore to the meadows, fields, and even the streets where Arthur's home is located, we're firmly within the geographical grasp of Tennyson's England.
And we do mean Tennyson's England. Because he's so depressed, these locations usually reflect that. So, the Arthur's house is now "the dark house" (165) and the old yew tree wraps its roots around old bones (61). So, we're in England, but an England that's been warped by the grief, despair, and doubt the speaker is suffering.
Much of the action, then, takes place inside Tennyson's imagination. At times, it's difficult to tell if we're in the real world or within his mind. Some memorable moments that demonstrate this interiority include when he imagines himself as a dove flitting around the ship that bears his friends remains back to England (Canto 12).
More famous and memorable, though, is Canto 95, where Tennyson imagines that he is reunited with Arthur. We're firmly in the landscape of the speaker's mind as he imagines "[t]he dead man touched [him] from the past" and "his living soul was flashed" on his own soul (the speaker's, that is) (1954, 1956).
The Nineteenth Century
The setting of the poet himself, then, is important in understanding certain elements of his poem. We're right smack in the middle of the Victorian era, which meant lots of cultural flux and anxiety. A lot of the doubt and wavering on religion that the speaker engages in is caused by things like Darwin's Theory of Evolution (which still causes us some probs, actually).
Industrialization was also ramping up during Tennyson's time, so that's why he's reaching back and clinging to all of those images of nature that seem right out of the Romantics.