I don’t know how other authors pick locations. But here’s an insight into how I do it.
1. I’ve lived there (or at least visited.)
Some of the locations featured in my stories are places I’ve been which spoke to me in some way.
Windermere/Grasmere in the Grasmere Trilogy is a prime example. The Lake District, in general, is one of my favourite places in the entire world. If I could live anywhere, it would probably be there.
2. Plot Led.
Found You is probably the greatest example from my books. I knew the story had to be set in Florida. The Keys was honestly the only place that would fit what I had in mind for the novella.
And, I fell in love with the Keys while researching for Found You.
CHICKENS!
3. My Bucket List.
Last, but not least, I pick places I’ve always wanted to visit. When I was younger (6 weeks old to 21 years old), I travelled quite extensively. I’ve been to twenty plus countries and lived in five.
I’ve always had a little bucket list of places I wanted to go. And hopefully, one day, I’ll be able to travel again. It’s been ages since I visited another country.
The Sin Bin is the best example of this one. Cornwall is a place that I’ve always wanted to spend a lot of time at. I think we went there when I was a baby, but I obviously can’t remember, so I don’t count it.
Researching the series was great fun for me because I got to vicariously live in the lovely villages that I’ve longed to see.
I’m sure there are more reasons, but those are definitely my top three.
How about you? If you’re a writer, how do you pick the setting of your story?
For readers, how important is the setting?
Author Dahlia Donovan 
Pretty much the same way you do: I either lived there, visited, or really, really want to go there. That said, I have a few books where the setting is totally fictitious to fit the plot. Word building is a lot of fun.