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Geo-targeting is an important filtering technique that I use for virtually every account I manage. For hyper-local campaigns (for example, a divorce lawyer who only wants to target clients within 10-15 miles of his office), I use Google’s custom targeting to create either a radius around his address, or a custom-drawn geographic region. This sort of advanced geo-targeting saves a client a lot of clicks from people who will never actually convert into customers (and thus enables them to pay more per click for the clicks that might actually convert).

It turns out, however, that the AdWords Editor doesn’t recognize custom local targeting. Why this is the case, I don’t know, but if you try to copy a custom-targeted campaign in AdWords Editor, you get the following message:

I appreciate the warning message. What I don’t appreciate is the fact that Google changes your hyper-custom targeting to the entire world! That’s right friends, the local divorce lawyer covering 10 square miles in the Northwest Suburbs of Chicago will suddenly be shown in Angola, Bangladesh, Luxembourg, and 230 other locations that are sure to drive lots of divorce-related conversions. 
This is just a ridiculous line of reasoning. Anyone who has used custom targeting almost by definition is looking for a level of granularity not available through standard DMA, city, or state-based targeting. Indeed, I can think of very few advertisers who would ever want to target the entire world (and if you did, you would be wise to set up separate campaigns by country or continent to measure performance differently and adjust bids). 
Inevitably, more than a few advertisers have not understood the pop-up warning and just assumed that their targeting would revert to the nearest city or state, or at least the US. Defaulting advertisers to the entire world is either really bad reasoning, a really lame way to make some extra money, or both.