How does the setting of the novel contribute to or detract from the overall effectiveness of the story?Please describe how the story could or could...

The Baskerville estate is on the moors in the west of England.  While this location may not seem particularly evocative in itself, to the people living in England in Conan Doyle's time it meant that the Baskervilles lived in a remote and, frankly, somewhat spooky place.  Parts of the west of England during the Victorian and Edwardian eras were woefully underserved by education for the common people, and prejudice against western (read: Welsh) or Cornish ways and people persisted.  The accent of the natives of these places, especially the moors, was considered coarse and impenetrable, and the customs of those of the western ethnicity seemed strange and superstitious to people from London or the south of England.  It might be likened, in a stretch, to "hillbilly country" or some other prejudiced and pejorative usuage that Americans might use to set a story in remote, strange, and mysterious place.

Aside from the perceived strangeness of the inhabitants, the remoteness of the place is an even more important element to Conan Doyle's story, and it would have been difficult to set the story, exactly as it is, in any other locale.  Significantly, the story is set on the "moors".  What are moors?  It is a British term describing undulating countryside which is unsuitable, in several ways, for farming.  The soil is usually peat, which is inimical to most crops, and overgrown with high grass and thick brush. In addition, throughout moorland are areas of bog or swamp, some of which are very treacherous (such as the Grimpen Mire, in which Stapleton meets his end!)

 If the earth told a true story, then Stapleton never reached that island of refuge towards which he struggled through the fog upon that last night. Somewhere in the heart of the great Grimpen Mire, down in the foul slime of the huge morass which had sucked him in, this cold and cruel-hearted man is for ever buried. (Chapter 14)

The peculiar geography of the moorland enabled the legend of the Hound in the 17th century, and just as easily the legend was have been perpetuated and faked by the villain of the story in the 19th century.  This description, of the original band of brigands who saw the hound with the first Baskerville, Hugo, shows the difficulties of the moors:

Riding slowly in this fashion they came at last upon the hounds. These, though known for their valour and their breed, were whimpering in a cluster at the head of a deep dip or goyal, as we call it, upon the moor, some slinking away and some, with starting hackles and staring eyes, gazing down the narrow valley before them. (Chapter 2)

England had not had, since the late Middle Ages, any large tracts of forest left; consequently, the only landscape which was not urbanized, farmed, or extensively used for animal husbandry was the low-visibility moorland.  The uneven terrain, the relatively low population, the hidden caves (which Sherlock Holmes and the escaped convict both use to their advantage), and the prevalence of fogs and mists all create a setting in which it is much easier to hide a hound, or a man, than in most of the other rural terrains of England.  In short, the difficulty, remoteness, and low visibility of the terrain of the moor, coupled with its mysterious reputation, are integral to the story.