In AdWords, under advanced location options, select Targeting Method, you then have three options:-
Target using physical location: Device-based location signals
AdWords show your ads to users located within your target area. However, if users include location terms in their query, and those location terms don't fall within your targeted area, those users won't see your ads, even if their query exactly matches a keyword.
Example
Target Location: Edinburgh
Target Keyword: Hotels
User Location: Edinburgh
User Query: Hotels
User Sees Your Ad: Yes
Target Location: Edinburgh
Target Keyword: Hotels
User Location: London
User Query: Hotels
User Sees Your Ad: No
Target using search intent: Location terms in user queries
AdWords only show your ads to users who include a location-specific term in their query that's relevant for your location targeting, ignoring where the user is located.
Example
Target Location: Edinburgh
Target Keyword: Hotels
User Location: Edinburgh
User Query: Hotels
User Sees Your Ad: No
Target Location: Edinburgh
Target Keyword: Hotels
User Location: London
User Query: Edinburgh Hotels
User Sees Your Ad: Yes
Target using either physical location or search intent (recommended)
AdWords show your ads to users located in your targeted area and to users who include terms specific to your targeted area within their search. This is applicable only if the location the user is searching for is in the same country where the user is physically located.
Example
Target Location: Edinburgh
Target Keyword: Hotels
User Location: Edinburgh
User Query: Hotels
User Sees Your Ad: Yes
Target Location: Edinburgh
Target Keyword: Hotels
User Location: London
User Query: Edinburgh Hotels
User Sees Your Ad: Yes
You also have a further option to set exclusion methods, by physical location or by physical location and search intent.
My biggest piece of advice is once you've configured your settings then, test, test, test using the ad preview tool with different location settings to make sure you are getting the desired results.