In the prologue and first couple books (the epic quest line is divided up into that structure; there are 15 books in the original game, 9 in the expansion) you spend some time around familiar locations such as the Shire, Bree, the Old Forest, and Weathertop. But the stuff you're doing is parallel to the books, you don't directly interact with any scenes from the books.

After a certain point your quests start to edge more away from the books and into territories not explored in them, the old, fallen regions of Man northwest of Rivendell.

Of course, the expansion takes place in Moria, but it goes much deeper into it than the books ever do.