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How does it make the terrain more 3D? It looks the same except that you cant get on top of it.
It gives the illusion of 3D. Without sprites units would just seem to slide along a totally flat surface. With sprites and an isometric perspective, units and sprites can appear to move around and behind eachother. Cliffs, even though they are flat, appear to be higher than the lower ground. Trees can appear to be taller than marines.