Ip to physical location covnerter?

I found this at XMethods today: IP2Location Translator. It states:

How It Works: The GeoPinpoint detects the IP address of the user, and translates that to geographic area. Accuracy of 95% at city level.

How, praytel does it do THAT? All I can figure is that it looks up the owner of the IP, or the owner of the domain that the IP has reigstered to it, and uses the city/state of that record. Interesting, but I've seen it done before, and 95% accurate it's not.

So the sceptic in me gave it a Test Drive and it came back with the correct city and state, but the company that owns the IP block is located here... so I'm going to plug in something different, like an AOL IP. I tried, and it came up with Boston. No clue how, not sure if that's right, but I couldn't get boston out of a whois or anything. the only thing I can think is that it somehow determines it from a traceroute. Now THAT would be something new and cool. AND it's a web service.