Horribly inaccurate! Google hasn't provided much in the way of explanation. It use to be worse because the numbers were based on the combined volume of both the search and all their networks. They changed this some time in 2010. Here are some other considerations that affect your impressions volume:
- Is your bid and quality score so high that your ad is literally running at #1 ALL the time?
- Are your campaigns capped or cut off by budget or scheduled time to show?
- Do you have any negative keywords applied to the campaign?
- Are using exact, phrase or broad match? Google supposedly bases the volume on exact.
It is not wise to completely rely on the Keyword tool local search volume. The other metrics like total search results, and competition help craft a better keyword list for your campaigns. I also like to export the entire data set, and look to see how the local volume is changing over time. Is it trending up or down? Is it a consistent average?