In this mode, your liability is limited to the Initial Margin posted. In the event of a liquidation, any Available Balance you may have will not be used to add margin to your position.
Isolated Margin is useful for speculative positions. By isolating the margin the position uses, you can limit your losses to the initial margin set, and thus helps short-term speculative trade ideas that turned out incorrectly.
In a volatile market, a highly leveraged position can lose equity quickly. However, note that although BitMEX aims to minimise liquidations from happening, in volatile markets highly-leveraged are more likely to be liquidated. For example, a 50x position will be liquidated after a 2% move against you.
When using Isolated Margin, you are able to adjust your leverage on the fly via the leverage slider.