How does an author use tone and mood to affect a story's setting?

yes

No. The setting of a story conveys atmosphere.

Tone and Mood are often defined as much the same thing however a distinction can be made by the picky.

The narrator produces the tone of the work depending on the attitude that he takes towards any aspect of the work.

The characters produce the mood of the work depending on their attitudes towards each other or other aspects of the work.