The sentence is describing actions, not a state; it doesn't directly say anything about where the people are, just what they are doing; and it isn't very specific about that.
If the sentence is part of a sequence of events, we can deduce some things about the state of the world:
- At the start of the sentence, the people are awake, and the tents are not yet put up. We can assume this, because people can't generally put up tents while they're asleep, or which are already in place.
- At the end of the sentence, the tents have been put up, and the people are in the position they plan to spend the night. Most likely, they are in bed inside the tents, but that isn't explicitly said - "settled down for the night" is a very general description of "getting ready to spend the night doing something".
Only additional context could tell us what happened next:
They put up their tents and settled down for the night. They slept soundly and woke to a beautiful sunrise.
or:
They put up their tents and settled down for the night. Before any of them could get to sleep, the roar of a wild animal brought them out of their tents.
or even:
They put up their tents and settled down for the night. Knowing that they would be unable to sleep, they played word games in the dark.