Clasically speaking, American Literature comprises all the literatures written in the continent of America by American authors (or naturalized Americans). It's a very general term that should be expanded in, for example: Canadian Lierature, Literature of the USA, Mexican Literature...etc. It does not necessarily be set in America, but typically it will be and will include geographical features of America, as well as dialects, idiosyncracies of the people as well as hopes, fears and worries.