What about you? Where does it take place? Does it matter?
I've never been into the fantasy genre, and therefore my work has never needed to take place outside of this planet. I don't think it's as simple as "picking a town and winging it", there's a lot of research and often a specific reason why I pick a setting, but it's always been on this planet, usually in my country.
I've got two WIPs that I'm working on, one that takes place all over the US (it involves a couple of musicians on tour) and another that takes place in Des Moines, Iowa.
As for whether or not setting matters, I would say it absolutely does. If used right, where a book takes place can be a driving force for that piece. It can make it the heart of the thing, and if the author creates a really good setting, he/she can get away with a lot of things.