I recently posted a question in a forum looking for web hosting companies in my community of Vancouver, Canada. I, like most people shopping for web hosting, was looking for good value for money with reliability, service and price, but there was one other key thing I was looking for: proximity of the company to me, because I like the idea of dealing with a reputable company with a bricks-and-mortar presence here in Vancouver, and because I believe, not only because of what I had seen and read online, but also because it seems very logical (I don't like the term "common sense," but this really is), that a website based in a data centre in Vancouver (or Canada at least) will receive a relevance bump with certain search engines for searches relevant to Vancouver.
I was surprised that all the responses claimed that server location was irrelevant. They claimed instead that the TLD (top level domain like .ca) is what search engines will use to determine relevance of a site to a certain geographic area.
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There is no way to know with absolute certainty how all search engines are constituted.
One of them however, Google, has posted indisputable evidence that for their search engine at least, server location is counted in the algorithm that determines relevance.
Matt Cutts' (Google Software Engineer) has posted the answer to this question on his Google Webmaster Central Channel on YouTube. This video is posted below. Server location is, without question, relevant to placement in SERPs.