I may take the time to write all this down, but usually I just imagine it in my head, and then I pick key details to weave through the story. This gives the reader a sense of place and it gives them a chance to imagine the setting in their heads, too.
As a fantasy writer, I hear a lot about "world building" as if it is unique to speculative fiction. World creation is a huge part of writing regardless of genre. Anyone who writes a work of fiction is creating a world (sometimes non-fiction, too). I don't care if its realistic or romance, fantasy or sci-fi, or whatever. Part of writing is to create a world for the characters to exist in. The book could be set in New York City or Buford, Wyoming, but we can't assume the reader has been there. The writer must build the world.
I find creating realistic places difficult. If I make my setting an acual place, I'm confined to the reality of that place. For example, the laws of physics have to apply. More importantly, I think, writing a real place means recreating what already exists. Stephanie Meyer wrote twilight with out ever visiting Forks, Washington. When I first read Twilight, I found her descriptions of the High School to be very odd. Seriously, what school in the north has separate buildings for each classroom? Google street view is fine, up to a point, but if you really want the reader to immerse themselves in a place, the author must immerse herself in a place.
Writing fantasy has it's own pitfalls as well. Though the setting is fantastical, it must also be believable. This is a fine line to walk. Building a fantasy world means creating your own universe with your own laws of physics (or laws of magic or whatever). The key to this is consistency. Create rules for the world and live by them. There is one sticky point for me in the Harry Potter series. (Which is hard to find because J.K Rowling does a super job of world building). The thestrals that pull the school carriages appear to those who have seen death. After Cedric's death, Harry get's on the carriages the end of HP4 without seeing the thestrals. However, he can see them at the start of HP5. Fantasy authors can re-imagine the world as they wish, but being consistent to the rules of your own world is crucial.
Creating a believable fantasy world involves immersing myself in this one. I pay attention to my surroundings using all my senses. How do things look, taste, feel, smell, sound. Also how does the passage of time feel? If my character is standing on top of a cliff looking down, how can I describe a sense of vertigo to give the imaginary cliff real depth?
I wrote most of my novel before traveling to Spain, but the experience of being in a uniquely different place helped me redefine and recreate my setting. I soaked in all my surroundings--the vague impressions, the little details--like I was looking at the world for the first time. I considered how culture shapes a place and the place shapes the culture. And I wove these nuances into my writing.
Then I came back home to the same, familiar surroundings. Somehow the world looked different because I was looking at it differently. What shapes the places that I've always took for granted? How can see the familiar for the first time? Sometimes mundane occurrences like walking down the street can have new meaning if I am looking at them though the eyes of a writer.