Geo Targeted ads

What always surprises me is when I download a podcast and it has a locally targetted advert in it.

It's a single mp3 file so how does that work, is the server creating it on the fly as I download it?

Basically yes. It's not particularly difficult to point the the RSS feed to a PHP script which geolocates the client and either returns one of several pre-compiled variants or takes the individual segments of the podcast and concatenates them with the appropriate version of the ad.