Countries are determined based on the top level domain of the requesting site. This is somewhat questionable however, as there is no longer strong enforcement of domains as there was in the past.
A .COM domain may reside in the US, or somewhere else. An .IL domain may actually be in Isreal, however it may also be located in the US or elsewhere. The most common domains seen are .COM (US Commercial), .NET (Network), .ORG (Non-profit Organization) and .EDU (Educational).
A large percentage may also be shown as Unresolved/Unknown, as a fairly large percentage of dialup and other customer access points do not resolve to a name and are left as an IP address.
To check your current web stats, visit the websites section of the Customer Control Panel: