Let Google Know The Geographic Location of Your Site from Vanessa Fox at Search Engine Land has nice coverage of Google's new Set geographic target feature in Google Webmaster Tools.
In short, if your site is tailored to a certain geographic location, you may want to use this feature. Google says, "If your site is targeting users within a particular geographic area, please provide us with the relevant information below, using only the fields that apply to your target audience."
Clarify, it is not to tell Google. Hey, Google, my site is hosted in Canada. It is to say that I am trying to target users who are based in this specific location. So your site can be hosted anywhere, Google won't care, Google will learn that you are trying to target a specific location by you setting this feature. If you are a travel site, be careful when using this, because I am sure people in New York, looking to vacation in Spain, won't be searching for "Spain Vacations" while sitting in an Internet cafe in Spain.
To get to this feature, login to Google Webmaster Tools, click on "tools" and then click on "Set geographic target." You should see:
Specify your preference, and if that means, you want to specify a geographic target, you will see this:
Yes, you can get as granular as the street address you want to target.