Basically, you want to do compound exercises before isolation exercises. Why? Because compounds give you the most 'bang for your buck'. You could do 5 isolation exercises for your legs, or you just squat and hit all the muscles at once. Compounds also have a much better effect on the release of anabolic hormones and central nervous system activation.
Some other reasons for going from bigger muscles to smaller ones:
Form/Safety: Compound exercises are generally harder to do than isolation exercises, as they are using multiple joints and are normally not guided by machines. As such, you want to do them while you're still fresh to keep good form, as bad form will get you injured. Isolation exercises are normally done with lighter weight, and are often guided through the particular machine, so you don't have to concentrate on form that much.
Performance: Since compound exercises use many muscles instead of just one, you don't want to pre-exhaust certain smaller muscles before attempting a compound lift, as that diminishes overall performance (see comment below).
In general, isolation exercises aren't even strictly necessary. If you're bodybuilding/powerlifting though, you will want to adress specific weak points sooner or later, though. That's when isolation exercises should be used, not as the 'bread and butter' of your workout.