It does target to the user based on your searches and other things (assuming you're cookied). It just doesn't ask for explicit input from the user which is counter to the "google way" of abstracting that kind of control away from the user.
Context ads are good, except when the ads aren't in the context of the site. Just because sex gets mentioned in an article, doesn't mean I want adverts for sex pheramones and when I read something on bargains on HDTVs I do want Bestbuy, FutureShop or eBay adverts popping up as I'm actively looking to buy something.