Was the Twelfth Night set in illyria because elizbethans knew area well?

No, the fact that Twelfth Night was set in Illyria had nothing to do with Elizabethans knowing the area well. The play is believed to have been set in Illyria because of the name's association with romance and adventure, as well as its ambiguous geographical location, which allowed Shakespeare to create a fantastical and timeless setting for the play.