It's only part of site targeting. If it were part of PPC targeting, then it would really get interesting.
The demographic website data used by AdWords comes from comScore Networks, the respected marketing information provider. At this time, AdWords has demographic information on users from the United States only. For this reason, demographic site selection is available only for campaigns which geo-target users in the United States. If your campaign doesn't geo-target the United States, you will not see the demographic option on the site tool.