let me illustrate, how this works - here's me surfing via one of Identity Cloakers Dutch proxy servers. When I access Google I get redirected based on the IP address that Google detects.
So I am redirected to the Netherlands Google, where I will get tailored results for the Dutch audience. So all my search results will reflect my perceived geographical location of the Netherlands.
If I change my proxy server to Sweden, you can see that I get redirected to Google.se and all my results will be skewed to Swedish based results while I search.
This is of course perfectly understandable and mostly it is extremely useful, for instance if I'm searching for plumbers in Sweden I don't want to get a list of companies based in New York but ones from my home country. Geotargeting can be used to customise the content based on where the host is, if you've ever used Amazon you'll get a similar result you'll be redirected to the version of Amazon which matches your location.
Of course this is also used to restrict access to content as well, many media sites restrict access to their content based on your location. Hulu in the US for instance will not allow anyone from outside the USA to view their content, same goes for ABC, Pandora, Foxx and a host of other companies. It's a behaviour replicated across the world from RTE in Ireland to the BBC Iplayer in the UK, most of the content will be blocked based on the location of your hosts IP address.
So Geotargeting defines what I see on the Internet?
I'm afraid it does from the useful stuff to ensuring your search results aren't full of plumbers from Stockholm, to the annoying stuff where a US business man can't watch his favorite shows on Hulu when he's travelling abroad. Many companies do this for licensing reasons, some for legal reasons - many of the best online casinos in Europe block US players as the online gambling laws are a bit restrictive (or confusing).
There are many problems with this geotargeting of content though, personally I think it's a shame that we are yet again taking something global like the internet and restricting and blocking what people have access to based merely on their location.
How exactly does it work ?
Well there's several methods but the vast majority of web sites use a rather simplistic method. You see there's no real correlation between IP address and location, there's no address range that must be used in Canada for instance. So what the web site owners do is look up which country your IP address is currently assigned to. In most cases this is just looking up the country of origin on your ISP, as that is the information that is available in the IP databases. So that's it just a simple script that looks up who is the owner of your IP address, it is often incorrect as there are quite a lot of these databases about WHOIS, DNS and coutnry specific ones, some are simply more accurate and up to date than others.
Also it is easily bypassed by people who make use of proxy servers to protect their identity and security online. Geotargeting will serve me content based on the proxy address I am using when I access a web site, so I make sure I am using a US server if I need to access US content and a French server if I want to view French content.
Frankly Geotargeting or perhaps more accurately Geolocating is a bit simplistic and is easily bypassed. There are people working on more accurate ways of working out a persons real location based on several factors - if you're interested have a look at TULIP. They look at a variety of factors in addition to the simple database lookup. They also trace routes that the information is coming from and also the round trip times to ensure they are consistent with the database information.