It can be an animal, a person, or a thing. It can be anything you want. If you want to illustrate your story, choose a main character you like to draw. When you start getting answers, draw a character web. Put your main character's name in the circle in the middle, and all of his or her characteristics on the lines coming out of the circle.
Every story has to happen somewhere.
However, the setting can have either a large or small impact on the entire story. Just a story about a guy in a cape running around some generic town. Think about Batman being set in a little town like Mayberry, USA instead of the magical, mystical town of Gotham. Not very exciting, huh. When you give your main character a problem to solve, your story comes alive.