If you are writing a book about vampires who are sensitive to the sun (or indeed burst into flames in direct sunlight) it probably isn't a good idea to set it somewhere like where I live in Queensland, Australia. It is sunny here more often than not; even in the depths of winter we rarely see a day that has complete cloud cover and not even a hint of sun. Although, now that I've written that little paragraph, it does sound like a fun idea to write about a vampire trying to deal with the challenges such a perpetually sunny place offers. Maybe it's better to use the abominable snowman as a bad idea to set in hot ol' Queensland. It is possible, it could even provide some unique challenges for your character to face, but unless it's done just right the reader will soon be rolling their eyes and muttering "Yeah right," under their breath.
In my debut novel, and the series that follows, my characters aren't really based anywhere although most of the story is set in the US. There are many and varied reasons for this decision, primarily because it just felt "right" for them to be American. I don't think they would be the same characters if they were based in Australia. That's not to say I won't write characters set in Australia, in fact one of my early-stage WIPs is set in the outback, but I won't say too much just in case it never sees the light of day.
Another element to where they story is set is how the characters interact with that setting. my character's aren't necessarily firmly grounded in any particular area. The reason for this is that in my mind, the ungrounded feel of the story suits the characters. They're not the sort to taste the local wine and embed roots deep in an area, they are the sort who do what they need to survive and that doesn't necessarily include stopping to find out where the local Walmart\Teslcos\Woolworths\<insert relevant shop name here> is. That doesn't mean that I haven't done as much research as possible about all the various places they travel. In fact, I've spent many a night walking virtual roads on Google maps and the like.
On the flip side, I'm reading a book that is set heavily in one particular town. It's described in such detail that I could probably stand a good chance of mapping it out, maybe even with my eyes closed. I could describe the textures of the bricks and the colour of the paint. For some, this level of detail is probably heaven. Personally, I find it a little indulgent and am ready to read on with what comes next in the story and despite this it fits with the main character. He's a character who notices the small details in life and who is in love with his small town--or at very least doesn't want to leave it. (NB: I'm only on the first of the series so maybe he does end up leaving later on, but if he does it hasn't happened yet).
I guess what I'm saying, in a roundabout sort of way, is that setting is a great chance for characters to grow from cardboard cut-outs to fully fleshed people. In real life, some people go through life stopping to take note of every brick on the sidewalk, others barely know which city they're walking in.
Taking the character element out of it for a moment, I'm curious about what sort of setting detail you like to see: one steeped in lots of detail, to the point where you feel as if you could find your way through the town on your first time visit without any extra guidance; or one where the setting is a background that you barely notice as you move through the story? Maybe somewhere in between?
And one more question, do you like to travel the world when you read or do you usually pick a story set closer to home?