What is the setting of chapter 1 and what is odd about it?

The setting of chapter 1 isn't entirely one exact place. The chapter contains a little bit of detail regarding the town of Treegap, the "touch-me-not" house, a road, and a wood:

On the left stood the first house, a square and solid cottage with a touch-me-not appearance, surrounded by grass cut painfully to the quick and enclosed by a capable iron fence some four feet high which clearly said, "Move on—we don't want you here." So the road went humbly by and made its way, past cottages more and more frequent but less and less forbidding, into the village. But the village doesn't matter, except for the jailhouse and the gallows. The first house only is important; the first house, the road, and the wood.

There really isn't anything strange about the town of Treegap. The "touch-me-not" cottage is a bit strange in the fact that it doesn't present itself as welcoming, but the real strangeness is found in the road and wood. Readers are told that the Foster family owns the wood; however, they show next to zero interest in it:

In any case, the wood, being on top—except, of course, for its roots—was owned bud and bough by the Fosters in the touch-me-not cottage, and if they never went there, if they never wandered in among the trees, well, that was their affair.

Readers finally get a clue as to the strangeness of the wood in the final paragraph of chapter 1. We are told that the cows absolutely do not go through the wood. Instead, they have made a path that goes around the wood. It's as if there is something odd or foreboding in the wood that should be avoided at all costs:

In the end, however, it was the cows who were responsible for the wood's isolation, and the cows, through some wisdom they were not wise enough to know that they possessed, were very wise indeed. If they had made their road through the wood instead of around it, then the people would have followed the road. The people would have noticed the giant ash tree at the center of the wood, and then, in time, they'd have noticed the little spring bubbling up among its roots in spite of the pebbles piled there to conceal it. And that would have been a disaster so immense that this weary old earth, owned or not to its fiery core, would have trembled on its axis like a beetle on a pin.

Readers will eventually learn that the tree marks the location of a very special spring that grants eternal life to anybody that drinks from it. The setting of the first chapter is strange because readers are told that animals know better than to go there.