The New York Public Library does some fun investigations into where exactly Sesame Street takes place in NYC. The show has often dropped hints at where the setting can be through song lyrics, building exteriors, Subway stop signs, and sometimes more specifically at 86th Street (but we don't know which Subway line for sure). It's kind of a fun little game to figure out where the hell they are. But given the diverse nature of the show's characters and the small neighborhood feel of the show, many have said it probably takes place in Astoria, Queens or on the Lower East Side (I've always just assumed it was the LES from the look of the buildings).
All of this makes me really want to read Street Gang by Michael Davis.