As with most of Guy Gavriel Kay's novels, this is set in an alternative version of our own reality. Arbonne stands in as a fantasy version of Southern France (Languedoc) at the time of the Albigensian Crusade - when the population of Cathars was exterminated as heretics in one of Europe's earliest and most shameful episodes of religious-based "ethnic" cleansing.
Because GGK is writing of an alternative universe, the story remains compelling even though the outcome in our own world turned out to be tragic: you don't know if the same fire and destruction is going to be visited on Arbonne, with her olive groves and vineyards, her beautiful ladies and gallant troubadours... the picture painted is so vivid, and the characters so well-drawn, that you'll truly hope all will be well (don't worry, I'm not going to reveal what happens).
What I will say is that this book haunted me so much that I decided to read up on Catharism and the Albigensian Crusade. GGK's work can have that effect: his Sarantine Mosaic (Sailing to Sarantium, and Lord of Emperors) also made me want to know more about the Byzantine Empire. I have to say I slightly prefer the Sarantine Mosaic to this, but no matter, it's impossible for me to award a novel of this quality anything less than the full five stars.