Sometimes, it's more fun to work with a place you've never been, but for that you must do your homework. In the case of historicals you MUST rely on research. With futuristic stories, you have to create a brand new universe. Anyway you look at it, choosing and creating your story's setting can be a daunting task. I don't know about everybody else, but when I start a new story, first I see the characters, and then I see the setting.
Plot comes next.
The reason I work this way is I consider the setting as one of the story's characters. The location of the story should seem as alive as our heroes and heroines. If you're creating a fictional place, then toponyms can be quite helpful. A toponym is a place name that gives the reader a mini-description of the place. Names like Metropolis or Smallville, give you the sense of big and small towns.