Location in Google Adword ads

Google Adwords blog has explained as when they display location in Adword ads and how they determine what to display.

When an advertiser uses regional targeting in a campaign, Google users searching from targeted areas will see the city or region name (whichever is more specific) displayed directly beneath the ad. This helps local users in determining that particular ad is relevant to them. Google displays the name of the region or city based on the actual search query or the Internet Protocol (IP) address of the user, if available.

More info available at: http://adwords.blogspot.com/2007/10/adwords-ads-whats-your-location.html