Selecting a language environment typically specifies a default input method and which coding systems to recognize automatically when visiting files. However, it does not try to reread files you have already visited; the text in those buffers is not affected. The language environment may also specify a default choice of coding system for new files that you create.
It makes no difference which buffer is current when you use set-language-environment, because these defaults apply globally to the whole Emacs session.
For example, M-x set-language-environment RET Latin-1 RET chooses the Latin-1 character set. In the .emacs file, you can do this with (set-language-environment "Latin-1").