What you are seeing IP address based geolocation data. When you use a web based service or product you sent your IP address and the IP geolocation service provider aggregates data from various sources and does a lot of analytics work to "estimate" where the device connected to that IP address is located. It is an estimated result on a city/postal code level scale.
Is there an ethical dilemma? PERSONALLY, I don't think think so. You are providing your IP address and the geolocation provider is doing a lot of logic and number crunching to figure where you are from but at the end of the day, it is not specific enough to violate any personal privacy boundary. This information is valuable in ensuring security and providing insights related to usage.
At the end of day it is an estimate because if you use a VPN or Proxy you can spoof the IP geolocation service. Visit that link above using a VPN, Proxy or Tor and see the result yourself.
Disclaimer: I work for IPinfo, but this is my personal opinion and personal account.