Every Vampire game I ever played was focused on a city, usually DC and it was a lot of fun. I also did a Lhankmar game in the past too... and Superhero games are fun in one city. And the best Warhammer game I ever played was set in a small city where the PC's were super concerned with being respectable.
The pluses of localized area are innumerable, it allows PCs to develop contacts, put down roots, invest in the community and become something. Plus their actions can matter more. Say in a D&D game they step in and help a baker who's being jumped by some thugs, well one result could be that the lower classes treat them like royalty, allowing them to eat free, or drink free. Another could be the head of a criminal organization puts them down in the dead book, especially since they were in collusion with the Dukes evil brother to break the support that the Burghers feel for the Duke himself (after all if the Duke cant protect them maybe his brother can). Or maybe the baker is a blowhard and an idiot and the townsfolk dont like him. Maybe he's a greedy jerk who sold the thugs bad bread and he was going to get what was coming to him till your meddling characters got in the way. Maybe now people expect them to stick their noses in where they dont belong.
And thats just the result of one minor fight.
The success of a localized game depends on the preparation you do as a GM and the amount of time you spend developing a supporting cast. Its harder too in some ways, because your players will expect you to be consistant.
This is why you should do a paragraph bio on anyone who's a major player in the area. I find relationship webs to be really useful for something like this. Take a dozen of so characters you plan to use for a story and note how they feel about each other, and how they relate.
For instance take the baker above
Write down his name on a sheet of paper and draw a line between him and his daughter choose a color to represent an emotion, love, dissapointment, etc...
Now give her a lover, or suitor who he doesnt approve of and one who he does approve of (she's pretty)
Put their names down too.
How does she feel about them, choose more colors and diagram her emotions. If you make the lines arrows you can have one person feel one way and another feel well another.
A quick sheet can create a saga of playing potential.
The baker has a daughter whos very pretty, and she's being courted by two men. One, the son of a farmer on the outskirts of town is well liked by the baker (he has a little money and she stands to gain some land) the Baker loves his daughter, but she's a little annoyed with him. The daughters other suitor is the local Brewers apprentice. She likes him a lot, but her father thinks he's shiftless and lazy. His friends are louts and the father decides to show his disdain by adding filler like ground straw to the bread they buy daily.
When they find out, they decide to teach the Baker a lesson. The PC's turn up right as they start beating him.
So now you have a story, but its easier to hold it together in a small local because you have an idea about how everyone will act. Now you can plan the reactions of the characters around their personal results.
Inserting the PC's into that mix is now really fun.
Now imagine adding an outside influence, a local officail visits with his retinue, an orc raiding party is spotted and the PC's need to try and defend the town. The local priest comes to them to ask their advice about a haunting in the local chapel. Or what if people the PC's care about end up dead for no reason.
