New Search Engine Watch forum member johnno123 has started a topic regarding country filtering at Google Australia; where the option to only view "pages from Australia" is given. A similar option is given on most (if not all) non-US Google search pages, with non-English speaking countries such as Germany, also able to filter by language.
This added functionality (also available on other major search engines) can prove extremely useful when trying to find local results. You can see this filtering in action by searching for [the kings head pub] with and without the filtering on.
Johnno goes on to say:
I am currently reviewing a website for a Local Tourism Organisation in Australia that is a .com site which is hosted in the USA. It therefore doesn't appear at all when the "pages from Australia" option is selected by people living in Australia.This problem frequently crops up in SEO outside of the states, especially when a website is not run on a ccTLD, hosted abroad and/or receiving inbound links mostly from pages outside of the country in question. The easiest way of ensuring that your site is included within this filtered result set is to use a local domain - .com.au/.org.au in this case. If the website has been using a gTLD already for marketing and publicity purposes though, it is not always possible to make such a change. In these situations I would advise trying to move to a website hosting provider with local IP addresses, ensuring that all WHOIS data has a local address and building links from other sites using your local ccTLD.
The main question in this post is asking about how many people use country filtering. From my experience, I've found that its usage is largely increasing. Non-English speaking countries are using it to find easily digestible information, switching to "the web" only if they cannot find what they're searching for; or when international content is specifically desired. English speaking countries use it partly as a filter of trust. Many people feel more comfortable with local websites and content, especially if the site uses their local (and increasingly recognised) ccTLD.
Further discussion on the topic at Search Engine Watch.