Setup lasts a little over one minute in the asymmetric game modes. The defending team moves into positions, but when playing on the offensive side with casual players I'm not aware of any constructive action aside from building ÜberCharge with the medic.
The attacking team is locked inside their base until the round starts and the engineer can't build buildings.
Best Answer
As you might expect, the setup time is designed for the defending team (particularly medics and engineers) to set up defences and prepare for the attack. Therefore there isn't really much for the offensive team to do other than build Uber and do the conga, but you can always use the time to communicate with your team to plan attacking strategy. Heavies can even throw down a hidden sandwich for quick health regen on maps where the resupply lockers are far from the gates. Otherwise popular activities include taunting, repeatedly hitting a teammate with the frying pan, or rocket jumping aimlessly until the time ticks down.