The Silicon Di-Oxide (SiO2) layer is used as insulator in semiconductors. In MOSFETS, the SiO2 layer forms the Gate region. Other than these uses..there is another VLSI process called SOI..Silicon On Insulator. This uses the SiO2 as the base insulating layer on which the other layers (Drain, Source,etc) are grown.
Yes, SiO2 is used for isolation and it can be grown easily when compared to other materials. The process is also simple as it only required oxidation of the already existing Si layer.