How does the setting affect the story of "Greasy Lake"?

The lake is dirty and the stomping ground of teenagers trying to be important.

There are two elements of setting—time and place.  Both of these are significant to what happens at Greasy Lake.  The characters are teenagers who are trying to prove that they are tough, and Greasy Lake is a perfect place to do it.

There was a time when courtesy and winning ways went out of style, when it was good to be bad, when you cultivated decadence like a taste.

The time period is not exactly given, but it is sometime during the mid twentieth century.  The boys like to wear leather jackets and talk about cocaine, but they are wannabees.  Going to the lake makes them feel tough.  Exciting things happen there.  It is where everyone goes at night.

The lake certainly isn’t much.  It is not far from town.

Through the center of town, up the strip, past the housing developments and shopping malls, street lights giving way to the thin streaming illumination of the headlights, trees crowding the asphalt in an unbroken wall: that was the way out to Greasy Lake.

The name sounds terrible, but it is appropriate.  The lake is described as murky, with a small island devoid of any vegetation but scrubs.  Its shores are full of garbage from all of the teenagers who hang out there.  Teenagers spend their nights there to “drink beer, smoke pot, howl at the stars” and listen to rock and roll music.

It is pretty much only in a place like this that the night’s mishaps could happen.  The group of teenagers finds out that they are not as tough as they thought.  The relative isolation of the lake, the time of night, and the depravity of its inhabitants results in the attack on the boys. There is a fight, and they attack a girl, “eyes masked with lust and greed and the purest primal badness.”  Somehow in the midst of all of this, the corpse turns up.