I'm not sure how it does the geolocation but it doesn't seem to be terribly accurate in every case. I've seen cameras that claim to be located in inland locations that are on beaches (like http://cryptogasm.com/webcams/webcam.php?id=11495 which the site says is in a Seattle suburb but is actually on the Oregon coast)
Indeed, but I think we have to realize that not all these open cameras are security failings. Some universities and towns just have open cameras so that curious people can watch. I know that Purdue had one near where the band would practice marching so that parents could see the band more frequently.