The characters in RPGs need someplace to do the things that they do, aka the setting. It doesn't really matter if it's based in the real world, some steampunk metropolis, a fantasy wilderness, or a deep space sci-fi. What setting you decide on, and how you run it can have a major impact on the game.
There are 3 main options: The Canon Universe, and Alternate Universe, or an Original Universe.
Using a setting as written is using the canon setting. The major advantage to using a canon setting is its familiarity. It's a rare gamer that hasn't seen Star Wars, Star Trek, or Ghostbusters, or any of the other games set in a licensed universe. What constitutes canon can vary a lot though. Take for example the Star Wars Universe. In some games, only what is from the original trilogy counts as canon. Others use any of the movies and tv shows. Others use the books, and some even use the comics.
The same problem arises with game settings like the Forgotten Realms, or Ravenloft, or Greyhawk that have all been around for a while, existed over multiple editions, and have a wide variety of both expansions and novels published for them. Figuring out what will "count" as canon for your game can be a pain. On the other hand, having everything all set means the only work you need to really put into it is to make sure you know your stuff.
Depending on how much stuff is out there, this can be a significantly difficult task, and even when you know the setting pretty well, it can be a major pain when one (or more) of your players knows it better and tell you that you're "doing it wrong". I dislike using canon settings for exactly that reason. Unless it's one that I know really well, better than anyone else, I prefer the Alternate Universe option over the Canon setting.
Alternate Universe (AU) settings are based on a canon setting, but with some things changed. They might be major changes, like the skywalker twins died at birth, or the Enterprise failed to stop the Borg, or a spaceship crashed into Waterdeep collapsing large chunks of Undermountain.
Using an AU setting alleviates the major downsides of a canon setting in that player knowledge of the official setting helps, but the changes keep them from telling you you're doing it wrong, or screwing up a major significant point. AU settings allow you to keep the stuff you like, and dump the rest. Most canon games end up as AU games, as the players influence things, at least eventually, unless they swerve into the realm of the Expanded Universe, where the canon things happen, but not where the PCs are. It's something of a compromise between canon and AU.
The downsides to AU are that your players might be upset at your changes, especially if they really love the canon setting. You also need to keep track of the things you've changed, and try not to add things in that shouldn't be there because of the changes that have been made. If the Skywalker kids never were, there wasn't any reason for Alderan to get blown up. Unless there was. That's up to you.
Original settings are ones you've made up on your own. The major advantage is that they're exactly what you want them to be, and need them to be. The major downsides are that your players will have little familiarity with it, unless they've played in it before, and that it's up to you to know and keep track of what's going on. Depending on the level of complexity you've designed, that can be daunting. The personal rewards of having a successful original setting are much greater than having picked one off the shelf.
This is #24 in the 30 Days of Gamemastering Challenge.