IP geolocation works the same way someone could guess your location from your phone number. Different area codes and prefices are assigned to different regions (or at least they use to before cell phones messed things up), and if you knew the pattern you could make a good estimate.
IP addresses work the same way, ISPs control certain ranges of IP addresses, and often break them up by region. The location you are seeing could be an arbitrary point in the middle of the region that has IP addresses like yours, or it could be one of the ISPs routing junctions. Or, as is often the case, it could be completely wrong.
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