It has to do a lot with routing. Routing is how a packet/message finds its way to the destination machine. ISPs are lazy/efficient when setting up routing tables. Instead of making every house a separate routing entry, they make the entire area 1 entry. The geolocation sites have either done some work to map those areas or most likely they get the information from the ISPs. Since your public IP is dynamic and it would be a privacy concern if the ISPs gave out your address, they can only map it down to the area.
Simplified technical information:
132.74.85.15 is your IP. It is part of the routing entry 132.74.85.0/24 (132.74.85.0 – 132.74.85.255). The geolocation site doesn’t know which house 132.74.85.15 is, but it knows 132.74.85.0/24 is in area X so therefore you are in area X.
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