Channel Setting refers to the art of setting gemstones in a channel, which is two (2) walls of metal between which a gem is set so it appears suspended in a groove. Channel Setting i s generally used for small stones of similar size, but graduated gemstones can also be channel set in this manner. A piece of jewelry with a groove for stones to be set in is also referred to as a channel setting.
Channel setting is usually used to set baguette and round stones. In this settings, the jewels are place in a metal channel, which has a slight rim which runs along the "channel" - hence the name.