Google in the last year or so has been focusing very heavily on local search results. It has even spilled over into their auto-suggest features. What does this mean to you and your website?
Well it depends on your services and products really. If what you offer is plumbing, electric, pizza delivery, and the likes, then yes this will effect you substantially.
How does Google get and use local search info. That is a good question, and from a programmers point of view I can answer it like this. I would use the whois database to find the webmasters location, as well as any on page address my bot would happen to find. I would then cross reference the data and push my data to my datacenters by region. I would then most likely have to get the person searching ip address and look it up, get their location, and give them the closest thing to their known city.