Othello is a tragedy where the hero, Othello, has a fatal flaw that sees his uncontrolled jealousy overtaking his good sense. To ensure the dramatic effect of the tragedy, Shakespeare makes full use of irony to drive the audience's sympathies. The verbal irony is evident in Iago's coarse references to Othello's heritage and to being "an old black ram"(I.i.89) and Othello's misplaced trust in "honest Iago"(I.iii.294) is one of the reasons why Othello places so much trust in him. It is thus useful in driving the plot forward and the image of Iago as Othello sees him withstands even Desdemona's pleas and her denial ironically serves to strengthen the case against her as Cassio "is betrayed and I undone."(V.ii.80)
Situational irony is present, for example, when Cassio is persuaded by Iago to drink too much even though he has "very poor and unhappy brains for drinking."(II.iii.29). He is subsequently blamed for a brawl, having been manipulated into it by Iago and now "unlace your reputation thus."(II.iii.186) Iago is also able to twist his words sufficiently to make Othello thinks he speaks of Cassio's honesty and the fact that "men should be that they seem"(III.iii.130) revealing both verbal and dramatic irony.
The dramatic irony also involves Iago as he rouses Othello's interest in the handkerchief, well-knowing what has happened to it and persuading Othello - as he did when Cassio was involved in the brawl - that he does not want to cause trouble when that is exactly his intention. Othello passionately demands "ocular proof"(III.iii.364) of Desdemona's infidelity and Iago purportedly proves that she gave the handkerchief to Cassio. Meanwhile, the audience knows exactly who the "devil" is in Othello.
The forms of irony are subtle uses of humor and most acceptable to Shakespeare's audiences suitably relieving tension as necessary but also serving to increase intrigue and intensify the ultimate betrayal of Othello by his trusted "ancient."