Imagine you want to play your guitar really loud but you don't want to disturb anyone else around you. An isolation cabinet is like a magic box that you can put your guitar amp inside of, so that it doesn't make a lot of noise outside of the box.
Think of it like you putting on noise-cancelling headphones, but for your guitar! The box is designed with special materials that help to absorb the sound and vibrations that your guitar makes, so that they don't travel very far.
This can also be helpful if you want to record your guitar playing but you don't want any extraneous noise interfering with the recording. Basically, an isolation cabinet is like a special room for your guitar and amplifier that keeps the sound contained so that you can play as loud as you want without bothering anyone.