I'm going to assume you've got a next hop in the town I've blocked off because there's an air base there and you're connecting from a military facility. It makes sense that the DoD has their own WAN out there.
Netblocks are used because they're normally accurate, but won't help in situations where you're on a private WAN that hops between countries or when the ISP happens to span between countries and reuse their finite pool of v4 addresses. That's why a lot of users from the UK, Germany, and the Netherlands get lumped in together.
E: I should note that I'm saying netblocks, but it could be leveraging autonomous system numbers or a regional internet registry database - the concept is roughly the same either way. It doesn't look up your specific IP, it looks up the larger system your IP is associated with; if the larger system has more accurate bookkeeping, your location will be more accurate - if it has less accurate book keeping, your location will be less accurate. For instance, my IP geolocation has me pinned 20 zip codes over from where I actually am.
To get a completely accurate geolocation, you'd have to ask an ISP which customer has which IP allocated to them, and look up their personal account information to find their street address - that's how feds do it.