Answer: I'm pretty positive that it's set in USA (United States of America)
Explanation: "and army-issued blankets, ones that still said U.S." when the story says "still said U.S" it indicates that the story took place in USA, since it would not mention the word "still" if they were in a different country.
Answer: After the picnic, Tea Cake and Janie become the topic of scandalous gossip. The town doesn't approve of the revered mayor's widow dating a poor, younger man. Sam Watson convinces Pheoby to talk to Janie so that she doesn't end up like Ms. Tyler, an old widow who was cheated by a younger man.