It refers to the mechanism that lets your ads get targeted towards specific languages and geographical locations.,"

Geo-targeting helps you target your ads towards any specific location or a language. You are free to choose a language or a location while going ahead with an Adwords campaign. This helps your ads appear only in those areas and in those languages for which they have been set for. All Geo-targeting activities happen on a server before the page is available to a browser. When server is requested by user for a page, a query is made to the ip address of the user against global ip addresses. The database tries to find out the users country or even the city and then decides what to do.