This scene displays the depth of Iago's malice. He has already decided to destroy both Othello and Cassio for the injustice he believes that he has suffered by Othello appointing Cassio, and not him, as his second-in-command.
In the conversation which he initiates with Montano, he assassinates Cassio's character by stating that, even though the lieutenant is an excellent soldier and a great leader, he has a worrying vice which is the equal of his virtues. He expresses concern that Othello should have so much faith in Cassio because this weakness will, at some time or other, bring disruption to Cyprus.
When Montano enquires whether Cassio often displays this infirmity, Iago states that it is a regular practice before Cassio goes to bed. He asserts that Cassio would stay up all night and all day if he does not drink himself to sleep. Montano is obviously concerned that Cassio should have a drinking problem and states that it would be a good idea if Othello is told about this weakness since he, in his goodness, might see only the good in Cassio and ignore the evil.
At this point, Iago has already arranged with Roderigo to set Cassio up. He knew that Cassio has a weak stomach for alcohol and that he gets drunk easily because Cassio had told him. He has now gotten Cassio inebriated and is ready to institute the next part of his pernicious plot. Roderigo must tempt Cassio into a fight and start a brawl. Iago knows that Othello would be so embarrassed by his lieutenant's unruly actions that he would dismiss him.
The plan works perfectly. Cassio is accosted by Roderigo on his way to his chamber and a fight ensues. Montano gets involved and Cassio fights with him. Othello is awakened by the brawl and after an 'honest' report of events by Iago, he dismisses Cassio:
...Cassio, I love thee
But never more be officer of mine.
It is pertinently ironic that he tells Iago that, in his honesty, his ancient has made light of the matter when it is in fact he who had set up the entire incident.