I’ve never tried this as a GM, but back when I lived in Michigan I played in a game that was set in the city the whole group lived in, Ann Arbor.
It was a Mage: The Ascension chronicle run by my friend Matt, and it sits at #4 in my top 10 campaigns list.
Having the game set in our town was part of the reason that it rocked. As you might expect, it gave us an excellent frame of reference for in-game locations — but the unexpected benefit was even better.
After playing in Matt’s campaign, I never looked at certain places around town in the same way again.
For example, there was a huge Technocracy complex beneath Ann Arbor in-game, and I thought about it every time I saw one of the steam vents that dotted the university campus in real life.
Thinking about that made me smile, but it also creeped me out a bit (in a good way). That game took root in my mind in a way that few others ever have.
Part of that can be chalked up to my vivid imagination, but it also speaks volumes about how effective this simple technique can be.
There are lots of ways to put a twist on this technique, too. You could replace all of the modern locations with their medieval equivalents for a fantasy game, update everything for a sci-fi game — or blow half of the town up for a post-apocalyptic game.