<img src="http://2.bp.blogspot.com/_LdoKT4S83p0/S39fizlhvBI/AAAAAAAABAA/2BiGv6nX2dI/s320/mario-rpg.jpg" border="0" />
Mario at his pad. You see the image from an overhead diagonal view. But try to see the image from a two-dimensional view. Imagine Mario isn't 3D but 2D, or even, imagine he's pseudo-3D. That's one way you can make top-down/isometric graphics in a game. See pic below.
<img src="http://www.freewebs.com/supergamingsprites/photos/Nintendo/Bowser-SuperMarioRPG.gif" border="0" />
Bowser looks 3D, but he's not. He's 2-D drawn at a certain angle. You can do the same for the hero and all the other stuff in your game. I don't know how isometric game physics work, but I imagine isometric worlds as pieces of paper and all the buildings and platforms as drawings on the paper and the hero walking all over the paper.