With over an couple of years of experience in Google Adwords Campaign Management from India. The reason why google adwords system is inaccurate with its region targetting feature is because of ISPs assigning IPs that do not relate to particular geo location.
In India and may be in some parts of the world many ISP providers provide IP addresses that can be used to wrongly identify the physical location. This can be one of the problems or Google has got it wrong. They display ads to you targetted to different region other than your location.
Suppose you search for widgets on Google.com from New Delhi, the sponsored list displays the Ad targetted to Maharastra.
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