Setting up a Grafana development environment on a Windows PC using Windows Subsystem for Linux (WSL) involves several steps to ensure compatibility with the Linux-based system that Grafana requires. This process includes installing WSL and a suitable Linux distribution such as Ubuntu v18.04, along with necessary development dependencies like Go, Node.js, Yarn, and Docker, which requires WSL2 for successful operation. Grafana's code repository should be cloned using Git, and the application comprises both frontend and backend components that need to be run concurrently. The frontend requires specific dependencies installed using Yarn, while the backend is initiated via a make run command. Developers can also add data sources through a script in the devenv directory, and the whole setup allows contributors to explore and contribute further to Grafana's development. The setup guide emphasizes using the Linux environment for all installations to avoid issues that arise from running concurrent Windows and Linux environments.