James Raggi the creator of Lamentations has vacillated on the subject of “should a referee use the earth or a new world while running Lamentations of the Flame Princess”. While it has been my experience that most DMs choose to use a fantasy world; there was, especially in the early days of the hobby and the fantasy that inspired it, a tendency to use modern human transported to the fantasy world which was populated by characters out of our world’s myths, legends, and sometimes history.The argument James makes against using the earth is “People know too much [about history] and not enough about it.” This quote appears in the ‘Referee’ guide from the ‘Lamentations of the Flame Princess: Grindhouse Edition’ of the book. It goes on to explain which some people will know a lot about certain subsets of world history and others will be fairly ignorant of it. Both groups will often have their sense of immersion disrupted and that can be distracting from the game.
While the argument for using the earth is “Remember LotFP is a horrific game, and to make the unearthly elements stand out as particularly unnatural and awful a more mundane setting is required.” which is from the ‘Better than any Man’ the 2013 Free RPG Day adventure. This approach does work well which is why most horror stories take place in and around our world. \Although both sides have merit there is a third option which is to create take either a character from the modern or historical world and drop them into a world of myth and legend similar to but different from the actual historical world. This allows for them to encounter strange things but still meet people who are "normal" and better yet their basic assumptions of the world's history can still be satisfied while allowing for differences and inconsistencies from the actual past because of "magic"
However, my favorite option which I believe can provide a referee with the benefits of both the freedom of a made-up world wit the implied understanding and 'reality' of the historical world. Set the game in the future 200+ years after a catastrophic event. During that time civilizations fell but people tried to rebuild in the memory of what was. However, these memories can be tarnished or for the good of the appearance of unity and normality dark and terrible things can lurk under the surface. Some communities can be nice and helpful having suffered less while other greedy and savage all the while trying to live up to the glory of the past. This approach to world building was inspired by Jack Vance's "Dying Earth" series and Clark Ashton Smith's "Zothique" cycle. Both however, are set after the world has aged to near extinction and the sun burns a harsh red. The other half of my inspiration came from an unlikely source, the old 'Thundar the Barbarian' with it's humanity crushed under the boot of powerful magicians crossing the line between science and magic, strange beasts and accepted humanoids, it hinted at a darker world ripe to inspire adventures appropriate for LotFP.
