Well, as per Aristotle's unities, the play is all set in one space, which represents only a single setting: in front of the royal palace at Thebes.
As a setting, this does a lot of work. Firstly, the royal house of Thebes represents the whole city, which is beset by a plague when the curtain goes up. Oedipus himself is both the cause of the plague, and the king of Thebes: and the play occuring against the backdrop of Thebes' central building reminds us of his dual roles as Thebes' king, and as plague-bringer.
Secondly, Oedipus is currently the King of Thebes, and of course, his father, Laius (whom he killed, and whose wife he married) was the previous incumbent of the throne. Again, the royal palace of Thebes is the central hotpoint in the way that this tragedy is structured: and again, we can never escape the fact, watching the play, that Oedipus is indeed the King of Thebes; that, even before a word is spoken, his fate as father-murderer and mother-marrier is sealed.
How does the isolation raise the tension? Purely and simply because the story is never interrupted. The symbol of Thebes looms over all the action, which zooms towards its painful conclusion without break or respite. And somehow the focus on one single location heightens the pressure: focusses the spotlight more tightly on this one man and this one city.
Hope it helps!