Li'l Bush takes place in an alternate reality version of the present day, where George H. W. Bush is president and George W. Bush ("Li'l George" on the show), along with his cronies (members of George W. Bush's real life former staff), are children attending Beltway Elementary School.
Also, just as George Bush's father is president, the parents of the other kids are members of the elder Bush's cabinet (all depicted as their real life adult counterparts, with the exception of the elder Cheney, who is depicted as Cheney with a Darth Vader helmet).