There are multiple locations where portage looks for set configuration files, which are usually named sets.conf. Not all of these locations have to contain a sets.conf, missing files are simply ignored.

At first it looks for the default configuration in /usr/share/portage/config. The default config includes sets that are expected on all systems and often critical for normal operation, like world, system or security. After that it will read repository specific configurations from PORTDIR and PORTDIR_OVERLAY that might include definitions of sets included in the repository. Finally a system-specific set configuration may reside in /etc/portage to either define additional sets or alter the default and repository sets.