The game takes place between the first and second movie.
Assuming that the game having Kevin defend 5 houses instead of one isn't simply because of padding or any other reason of making the game longer, it might take place between the first and second movies.Kevin's parents "accidentally" leave him alone again, and everyone else is out of the neighborhood. So the child has to defend all of the houses in the neighborhood from the Wet Bandits, who somehow escape from jail after the events of the first movie. Eventually, Kevin makes the wet bandits stop looting all of the houses and the police arrest them for the second time, hopefully leaving room for the events of the second movie.
