The feature is possible thanks to the publicly available Geo IP database by webnet77.com. Gibbon will ask you about once a month to update your local copy of the database about once a month. Don't worry, the size of the database is really moderate. Currently well less than 2 MB.
Sometimes it is impossible to find the location of a particular player and you see a dummy flag with a question mark. Most of the time you will find out that these players use the client OdesysMobile. FIBS fakes the IP addresses of the users of this client into “PhoneUser.MayBeFlakey.net“ and, of course, this fake address cannot be looked up.