Cyprus is an isolated outpost of the Venetian trading empire. Why might Shakespeare decdied to set Othello mainly in such a place? (think about Iago's manipulaltion)
Iago may have more opportunity to manipulate Othello on Cyprus than in Venice. In Venice, Othello would be surrounded by many more people who know him. These people might have been able to give him advice about his wife (since many there would know her, too) and might have beeen able to counteract the influence of Iago. On Cyprus, Othello is relatively isolated from friends other than Iago, who is, of course, not a true friend at all.
Cyprus was a vital island, prone to attack due to its position. The island of Cyprus could be said to symbolize Othello himself: it is distinct from Venice though a valued part of its empire. Similarly, Othello is not a Venetian but is a very important part of the strategic defence team protecting the nation. Also, Othello is prone to attack -from Benvolio at the beginning of the play and by evil Iago throughout.