Flash fiction has to be character led due to its limited word count but you can set that character wherever and whenever you wish. A few telling details can set up a magical world quickly. For example from my George Changes His Mind (in From Light to Dark and Back Again), I set up a magical world with the opening line "He refused to kill the dragon." The telling detail there is in one word - dragon! The story goes on to show what happens and that is the important bit of the story after all. I don't need to use thousands of words setting up the magical world in which this is set. This is not crucial to this story. What matters is it IS in a magical world and what George goes on to do or not do.
A lot of my stories are either reflections of a fairytale world or set in it and they are great fun to write but I always focus on what the lead character is like. That is the crucial point of any story I think but in flash where every word must work hard to earn its place to stay there, it is even more so.