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Both cursor sensitivity and isolation levels address the problem of concurrency control, but in different ways, and with different sets of tradeoffs.
By choosing an isolation level for a transaction (typically at the connection level), you determine the type and locks to place, and when, on rows in the database. Locks prevent other transactions from accessing or modifying rows in the database. In general, the greater the number of locks held, the lower the expected level of concurrency across concurrent transactions.
However, locks do not prevent updates from other portions of the same transaction from occurring. Consequently, a single transaction that maintains multiple updatable cursors cannot rely on locking to prevent such problems as lost updates.
Snapshot isolation is intended to eliminate the need for read locks by ensuring that each transaction sees a consistent view of the database. The obvious advantage is that a consistent view of the database can be queried without relying on fully serializable transactions (isolation level 3), and the loss of concurrency that comes with using isolation level 3. However, snapshot isolation comes with a significant cost because copies of modified rows must be maintained to satisfy the requirements of both concurrent snapshot transactions already executing, and snapshot transactions that have yet to start. Because of this copy maintenance, the use of snapshot isolation may be inappropriate for heavy-update workloads. See Choosing a snapshot isolation level.
Cursor sensitivity, on the other hand, determines which changes are visible (or not) to the cursor's result. Because cursor sensitivity is specified on a cursor basis, cursor sensitivity applies to both the effects of other transactions and to update activity of the same transaction, although these effects depend entirely on the cursor type specified. By setting cursor sensitivity, you are not directly determining when locks are placed on rows in the database. However, it is the combination of cursor sensitivity and isolation level that controls the various concurrency scenarios that are possible with a particular application.