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

The neighborhood is a microcosm for the world that has changed and evolved around Willy Loman, while Willy Loman appears to not only have NOT changed but to be completely nostalgic toward the past and in a state of almost-denial as to what these changes mean.

For example, from the opening pages of the play:

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 grown 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 neighborhood. More and more I think of those days, Linda. This time of year it was lilac and wisteria. And the peonies would come out, and the daffodils. What fragrance in this room!

If we compare the description of the house that is provided in the opening stage directions and also to the description provided late in Act II, we see just how dramatically the Loman house has changed over the course of these past 25 years.

The world has changed around Willy Loman and, on one hand, Willy Loman laments the changes that have occurred and, on the other hand, seems to think it is still possible to return them to the state they once were. This is but one example of Willy Loman's propensity to be an idyllic dreamer and denier of reality.

source

partment buildings have gone up all around their home, population has increased drastically.