The purpose of this tool is to show Google that your website is relevant to a specific region.
You can target invividual subfolders or subdomains on your website.
With a subfolder, you can verify the TLD (top level domain of your website)
When not to use Geotargeting:
Just for a specific language
Check the discussion group on Webmaster Tools for more info. Here is a video:
Inexpensive membership site