Setbacks are part of the Inspiration System.
A Setback is a choice to take a disadvantage on an action/reaction associated with your character's personal characteristics. This gives the character Inspiration as payment for taking the disadvantage.
An example of this would be a character that has a Flaw similar to: "I would do anything for more gold," who is fighting against a red dragon. The dragon uses it's firebreath and the player decides to take disadvantage on their saving throw against the breath weapon due to the distraction of the treasure. The character makes their disadvantaged save and they gain Inspiration.