Your ads are targeted to reach a certain audience based on your chosen language and location targeting options. Google AdWords will then determine to show your ad based on the users Google domain, query entered, Internet Protocol (IP) address and language preference.
Google have over a hundred country specific domain extensions to which AdWords ads can be shown. The domain is the suffix attached to each web address for example Google.com for users in US, Google.es for users in Spain and Google.fr for users in France etc. Google also uses the location in the search query of the user to determine which ads to show.
Google can sometimes use the user IP address to determine his physical location. The users IP address usually get assigned by his Internet Service Provider (ISP) and are defined for a certain area. For example if a user in France uses the Google.com domain the user might see ads only targeted to France even though his not using the Google domain Google.fr.
The preference setting on the Google search page allows the user to set the language option in which he prefers to search. Google only displays ads targeted to that specific language option. If a user doesn’t specify his language preference, Google determines a default preference depending on the Google domain. For example the Google domain Google.fr will have a default language preference set to French. You must note that Google does not translate ads so if you write an ad in English and you target a Spanish user your ad will still appear in English.