Google Maps seems to be able to do this quite well, presumably leveraging my ISP. How is this done? Is it possible to tap Google Maps or some other database to derive where the user is? (Within maybe 1 km?)
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This is done through using a GEOIP database.
A company named Maxmind is in this business. There are paid databases and free databases (the latter less accurate, of course).
However, I believe free databases could not be used for your “1km accuracy”.