Graham,
The answer to your questions is, "Yes."
1. You're limited to what you know.
2. You can try to lay them out to set a mood. (Good luck on this one if you're playing Canadian taverns - especially in Alberta.)
3. You can try to lay them in order according to theme or topic.
4. You can lay them out in key signatures that blend from one to the next. (This is useful if you have absolutely nothing to say between songs.)
5. You can do all requests, or even the same song - over, and over, and over, and over, depending on whether the requestor is armed.
6. You can play what the audience wants to hear - to raise your tips
7. You can seek to raise public consciousness with protest songs (the Alberta hint applies here, too).
8. You can just copy Neil Young's set from the concert he did in your town most recently.
No kidding, though, I think set lists are an art, themselves. Try hard not to get in front of the audience and say "Gee, what should I do next?" Plan it. Plans can always be changed. In my usual coffee house, bookstore setting, they just don't want it loud. One trick I employ is to organize the mp3's of my songs in a setlist order, then just play the beginning and ending of each song to see how I like the transition. If you don't have your repertoire recorded - do it. Lay out any setlist you have and practice playing it as planned in front of a tape recorder - then listen to it. Is it smooth? Is it too contrasty? Is it snuggly? Is it caustic?
And then when you get it all laid out, you'll arrive at the gig, tape the written list to your mike stand or amplifier or floor, and you'll immediately get three requests for songs that aren't on your list. Nor will you know them. Go with the flow, Dude!