Why would people search nearby area or their location along with the searching phrase in google?
I know few of them, like user searching for a specific nearby stores.
Google Keywords Search Engines
Google can now infer your location based on IP address or if you are logged into Gmail it knows based on previous search habits where you live.
Therefore it will often use a more localized search for you. So if you searched for 'pizza' Google would typically pull up a map and show localized information.
However, this was not always the case so it is still habit for some to search for 'pizza city, state' - Habit would be one reason.
The other reason is that not all searches will be localized by Google. If you are searching for something like 'designer jeans' - that wouldn't necessarily be an item that is going to show local results first. If you want to find some designer jeans locally you may get better results by using city, state.