A setback is an event that makes you lose progress or keeps you from gaining ground. If you're knitting a sweater, dropping a bunch of stitches would be a big setback.
If warring countries are negotiating a treaty, a sudden resurgence of fighting would be a huge setback for their peace plan. And if you're trying to finish baking in time for you friend's birthday party, knocking the frosted cake onto the floor would also be a setback. Setbacks are always frustrating — unless you're talking about the kind of setback that's defined as "a building's distance from the street."