World building is a big part of writing. You need to immerse your reader into your world quickly, seamlessly, and so nicely that they aren't aware they've just left their own world behind.
In my paranormal books, I use my everyday world then add a paranormal element to that existing world.
Take my upcoming release for example. The Haunting of Amelia Pritchart (releasing 9-30-09 with The Wild Rose Press). In this book, it's set in the present day with one exception: the heroine meets a ghost. Then the story shifts back to 1918 and we are allowed a glimpse of the ghost's story.
Or in The Art of Fang Shui (releasing 01-08-10 with Eirelander Publishing) I chose the backdrop of the Indiana Dunes National Lakeshore Park for the setting of most of that book and as the hero (a vampire) and the heroine try to hike their way out of the forest, they encounter fairies, a witch, a goat man, etc.
Remember, you don't need to physically build a whole new world with foreign sounding names, rules, etc. Oftentimes, you can use the real world and just sprinkle in paranormal elements.
It's that balance of believable/unbelief that makes a good book!