From Working with multi-regional websites
Google generally uses the following
elements to determine the geotargeting
of a website (or a part of a website):
Use of a ccTLD is generally a strong signal for users since it
explicitly specifies a single country
in an unmistakable way.
Webmaster Tools' manual geotargeting for gTLDs (this can be on a domain,
subdomain or subdirectory level); more
information on this can be found in
our blog post and in the Help Center.
With region tags from geotargeting
being shown in search results, this
method is also very clear to users.
Please keep in mind that it generally
does not make sense to set a
geographic target if the same pages on
your site target more than a single
country (say, all German-speaking
countries) — just write in that
language and do not use the
geotargeting setting (more on writing
in other languages will follow soon!).
Server location (through the IP
address of the server) is frequently
near your users. However, some
websites use distributed content
delivery networks (CDNs) or are hosted
in a country with better webserver
infrastructure, so we try not to rely
on the server location alone.
Other signals can give us hints. This could be from local addresses &
phone numbers on the pages, use of
local language and currency, links
from other local sites, and/or the use
of Google's Local Business Center
Note that we do not use locational
meta tags (like "geo.position" or
"distribution") or HTML attributes for
geotargeting. While these may be
useful in other regards, we've found
that they are generally not reliable
enough to use for geotargeting.