I have a 3-pocket chart that I use for this. At the beginning of the year I will do a reading minilesson on each of these components. As part of the lesson each student will create 2 or 3 index cards for each element (I try to get them to be a bit descriptive) . So the character lesson might yield:

a hairy monster

a 5th grade basket ball player

a family of martians
And the setting lesson might give me:

mrsG's backyard

in the middle of the Grand Canyon
etc, etc.
I will put these in my pocket chart, and from the kids will pull a card from each element and write a story about it. They are generally pretty funny, as the kids have to be very creative to unite some of the elements.
I will assign this writing project once or twice, but a lot of kids enjoy doing it and will do it multiple times throughout the year. Several of them will even make new cards for me when the choices get thin.