How does Google Adwords handle geographic searching ?

[B E]

On Google Adwords, you can specify geographic targetting so that your advert only appears when someone searches within a boundary e.g. 50 mile radius of London, UK. How does Google know about this when all it has is an IP address of the person searching ? I kow IP address can tell you country but how can it tell Google the specific location. I've posed the query to Google but all I get back is very generic almost computer generted info which isn't very clear.Thanks.