How has the neighborhood changed? Why does it matter to the story that his surroundings are no longer the way they used to be?

Here's Miller's description of Willy's house. It may as well be a depiction of Willy himself:

Before us is the Salesman’s house. We are aware of towering, angular shapes behind it, surrounding it on all sides. Only the blue light of the sky falls upon the house and forestage; the surrounding area shows an angry glow of orange. As more light appears, we see a solid vault of apartment houses around the small, fragile-seeming home.

Like the house he has lived in all these years, the house where Biff and happy grew up, Willy is a tired little man surrounded by a world that is hemming him in and exhausting him. What was once the peaceful countryside with sheltering elm trees, is now a threatening city, where people compete for the very air they breathe:

WILLY: Why don’t you open a window in here, for God’s sake?

LINDA (with infinite patience): They’re all open, dear.

WILLY: The way they boxed us in here. Bricks and windows, windows and bricks.

LINDA: We should’ve bought the land next door.

WILLY: The street is lined with cars. There’s not a breath of fresh air in the neighborhood. The grass don’t grow any more, you can’t raise a carrot in the back yard. They should’ve had a law against apartment houses. Remember those two beautiful elm trees out there? When I and Biff hung the swing between them?

LINDA: Yeah, like being a million miles from the city.

WILLY: They should’ve arrested the builder for cutting those down. They massacred the neighbourhood. (Lost.) More and more I think of those days, Linda. This time of year it was lilac and wisteria. And then the peonies would come out, and the daffodils. What fragrance in this room!

LINDA: Well, after all, people had to move somewhere.

WILLY: No, there’s more people now.

LINDA: I don’t think there’s more people. I think

WILLY: There’s more people! That’s what’s ruining this country! Population is getting out of control. The competition is maddening! Smell the stink from that apartment house! And another one on the other side...

Willy is being crowded out by his age, by change he can't keep up with and by his own failed and contradictory dreams and inner conflicts. More and more, he drifts into the past, which is the only refuge for this man on the verge of utter collapse. His peace of mind, like the peaceful surroundings of the home as it once was, is now beset by his weary present and his almost unbearable toil and struggle to make a living and still walk with pride. He is losing ground on all fronts.