There's no question that a lot of changes happened related to Google searches last year with PANDA and other updates. Some of these changes were quite subtle and very far reaching. How Google intuitively handles local search is a great example.
If you could go back about a year and type something like "custom jewelry" in Google search, very likely you would get the same set of results no matter where in the country you and your computer did the search from. That has changed. Google now understands that most searches like this are in fact local. In this example, while the search request may well be for general information, it also is very likely that the search will culminate in the search for a jewelry store or shop or a jeweler. In other words a person or a business.
Google knows where you are! Big Brother aside, this can be pretty handy. Your IP address is akin to a computer based zip code. That alone is enough to tell Google from where in the country the search originated and then deliver a set of results consistent with that location. You can test this by telling Google that you'd like to conduct the search for a different location. After you type the search query, you'll notice the settings icon on the upper right. You can click that and change your location. Try two different locations and watch distinctly different search results.
Google is also smart enough to know when you include the search location in the search to then ignore the actual location of the search computer. For example, type "custom jewelry dayton ohio" from anywhere in the country and you'll get the same set of results.
Since I basically serve brick and mortar businesses, I love this! On the flip side, imagine if you are trying to rank nationally for a product or service. The challenge becomes much more difficult! Even a more general term like "diamonds" will produce different results in different locations. The search may or may not produce a Google MAPS listing on the page depending on the location and the organic listings will at the very least be in a different order. This gets a little fuzzier because it's possible that the search is to understand diamond value and it really isn't the intent of the searcher to be looking for a jeweler, or a business. Well, I think Google has erred in favor of the notion that eventually this will lead to a local search. This favors local businesses for sure. And it should favor the user. How many times have you typed a search only to add a location qualifier because you didn't get a local result. The chance that you have to do that now is much less. Knowing that search is headed for mobile, this makes a great amount of sense too. The least amount of typing you have to do, the better. Until we have Google wired into our brains, this is as good as it gets in my opinion.
PS: A LOT of people took a hit with the most recent Google updates but I have to say that my clients across the board got better and better (all my clients are local SEO clients). While everyone is focused on links (link farms are said to have a detrimental effect on Google ranks) my own thought is that a shift in to a more local focus could be the culprit in many cases...especially those who make a living driving affiliate links and benefit from national exposure. I haven't tested this theory but I'm willing to bet the Google local factor had as much to do with traffic deficits in these sites as did any perceived link spamming.