When I was working on the Disney film "Tarzan", Glen Keane storyboarded the sequence of Tarzan and Jane meeting for the first time and he did an amazing job of creating an emotional, entertaining and memorable sequence (as he always does).
Somebody has cut together the thumbnails he did of the sequence and posted it on youtube (see below). I would turn the sound off, though, because it doesn't match the picture (it's a Phil Collins song, and isn't really the right tone for the sequence anyway). Even without the sound, the charm of Glen's work is evident, and the sequence is bursting with personality and entertainment.
Back when I was on Tarzan, I spent some time looking at the sequence to try and learn from what Glen had done. I was really struck not only by how he invested Tarzan and Jane with so much character (it's a great example of really crawling into your characters and thinking through their actions and reactions as real living, breathing beings), but also how much he was able to create a third character by exploiting the environment of the scene. For example, Glen's drawings at the beginning make great use of layout by contrasting the massive and bulky shapes of the tree with the small shapes of prim and proper Jane (making her feel overwhelmed by the enormity of the jungle surroundings). I also love the simple but effective idea of having Jane get awkwardly stuck in the negative space between two trees, as well as the idea of having a sudden downpour drench her while she's trapped amongst the trees, unable to move forward or backward.
The reason I think these ideas are so great is not just because they're entertaining or fun, but also (and more importantly) because they all work in concert to convey the overall story point: that Jane is feeling out-of-place, lost and overwhelmed by the enormous jungle she's found herself lost in.
Looking at Glen's boards was the first time I ever remember being aware that the environment can function as another character and contribute to the entertainment and storytelling of the scene. Up until then, I had always thought of the environment as simply a backdrop for the action.
If you find yourself treating the setting of your story or scene as just a background, maybe it's time to ask yourself a few questions...for example, is there only one location where the scene could take place? Or is it a scene that could take place anywhere? As examples, a breakup scene between two married people could take place almost anywhere, whereas a scene involving a doctor performing open heart surgery can only happen in a hospital.
So, if your story involves two people breaking up, where is the best place (within your specific story) to have it happen? In the same place where they first met? In the delivery room as their first child is born? At the emergency room as one of them is dying? Is there a specific setting that will have special meaning because of what it means in your story? Is there a location that will have more emotion than anyplace else? Or is there a location that will have more entertainment than anywhere else? What's the best option for your story? What are you trying to say, and how can the environment help say it in the strongest possible way?
As far as my other example, we usually think of open heart surgery taking place in a hospital or emergency room. But there could be a lot of entertainment in seeing someone have to do this operation in the back of a taxi, or on their kitchen table, or in the middle of a snowstorm. Setting your scene in an unexpected place can add a twist to a scene that otherwise would feel familiar and tired.
I don't have an exhaustive list of examples where the setting becomes another character...but here are a couple different uses of location that add to the storytelling.
In this example from "The Third Man" (SPOILER ALERTS AHEAD), a carnival provides the setting as Joseph Cotten meets with Orson Welles, who is on the run from authorities in post-WWII Vienna. Orson Welles has been selling diluted penicillin on the black market, which has killed several people. In this scene, Cotten and Welles ride a ferris wheel to discuss matters in private. While the ferris wheel rises high in the air, Welles offers his rationale for why he feels no remorse for his actions, and the height of the ferris wheel and the perspective of the people on the ground far below allows him to illustrate how little connection he feels to his victims.
A great use of setting to illustrate the story point, and the height makes for an organic moment of jeopardy when Welles seems to be thinking of murdering Cotten. Also, the light hearted atmosphere of a carnival makes for a nice contrast to the macabre subject they're discussing (or, depending on how you feel about carnivals, you could say the typically creepy carnival atmosphere makes for a naturally disturbing place to discuss such greusome things).
The climax at the end of "The Third Man" (ANOTHER SPOILER ALERT) involves the authorities finally catching up to Orson Welles.
This is the kind of chase scene that could unfold anywhere, so the film makers decided to find an interesting and memorable place to set the action...in this case, the sewers underneath Vienna (and on sets built to look like the sewers). This gives the sequence a unique feel and makes what could have been a standard cops-and-criminal chase a distinctive and memorable finale. The use of audio, light, shadows and staging are nothing short of incredible (skip to 1:50 if you want to go right to the sewer chase).
As a last thought, some films just seem more successful than others when it comes to making their setting seem like a living, breathing place (again, like a character in and of itself). The desert in "Lawrence of Arabia" doesn't feel like just a backdrop for the action; it feels like a real obstacle to the characters, and not jsimply as a vast expanse that's a hazard to traverse. There's deadly and disorienting sandstorms to contend with, as well as quicksand that sucks people and camels to a quick and gruesome death (and probably many more things I'm forgetting, it's been a while).
"Treasure of the Sierra Madre" is another example: as the three heroes search for gold in the mountains, the environment is portrayed as foreboding and difficult to navigate, but there's the additional challenge of trying to "read" the landscape to find a suitable spot to mine. The native bandits and villagers aren't just background, either, they all play a part in the telling of the story and have their own unique personality and flavor within the story. And a sudden storm of rain and wind play a pivotal part in the outcome of the finale.
The iconic car chase scenes in the movie "Bullitt" take full advantage of their location on San Francisco streets and give the film a sense of place that could only come from that particular city. The car chases in "The French Connection" do the same thing for New York's streets and elevated train. "Ferris Bueller's Day Off" does a great job of using the Chicago setting to give the film a unique feeling and personality. John Ford famously used Monument Valley in Utah to provide a backdrop and flavor to his westerns that are unlike any other.
Those are just a couple of examples off the top of my head, and I'm sure you can think of a lot of better illustrations...but in any case, I hope the point is clear: location and setting are not an arbitrary choice and they can add a lot of meaning as well as personality and entertainment to a story. Where you set the action can help illustrate ideas that might otherwise be hard or even impossible to convey. So remember that the environment can be a character too!