If we look at only standard AdWords it seems to be that Google experiments with a few factors:
If the ad has been targeted at a country in the UK (lest say that's equivalent to a state in the US), or a city.
If the search is from an IP that is seen to be from the area that an advert serves.
If a search has a locality in it that matches the targeting of the advert.
So you will see, on occasion, adverts show the locality in the following circumstances:
The IP of the searcher matches the area selected as the campaign area. e.g. if Scotland is selected rather than the UK and the search comes from Edinburgh then 'Scotland' would show underneath.
If The IP does not match but the search does have 'Scotland' or 'Edinburgh' (etc..) in it. This would show 'Scotland' again.
Very Occasionally you may see 'Edinburgh' but I think this has been dropped recently as it may be misleading.
There appear to be no hard and fast rules, even when one ad shows up with the '5th line' it can be that other '5th lines' do not on the same search (probably to assess the overall impact of different numbers of identifiers).
It's all about the 'local' inventory that Google has for a term too, they will rely on this more and more as they become better at attracting local advertisers, rather than the 'national locals' (is that even a term? - I mean the companies who seek 'local' traffic on a national scale).
