Based purely on my experience, I would say it doesn't matter. But I'd err on the side of not including cities/states in there: most IYPs have limits on how many words/characters can go into your keyword field, so although I'd suggest adding as many relevant keywords as you can think of, I wouldn't blow space on cities and the like. The "keyword" fields might at most be minor ranking factors for Google, but even so, Google already knows full well where you're located. The way I see it, your only job with any given "keyword" field is just to add little brush strokes to the picture you've been trying to paint for Google of what your business is and what it does.
I completely agree with Phil. I might even go so far as to say it can be a spam signal if you're stuffing the city name into every category and keyword field in all your citations. Like Phil said, Google knows what city you are in based on your NAP.
Oh, and I forgot to mention: Google looks at the "keywords" and categories fields on your citations - even the little ones - and often populates your MapMaker category record with those.
Try this little experiment:
1. Go to the Google+ Local listing of a business that's been around for a couple years - preferably one that ranks OK.
2. Click the "Edit details" link.
3. Copy one of the weirder-sounding categories - or one that you know for a fact is a category Google doesn't let you choose from its "list." Let's say it's "Cat Grooming Service."
4. Type the following into Google: name of company "cat grooming service" 5. Look at the search results. Chances are you'll find an IYP where (1) your were allowed to specify "Cat Grooming Service" as a category, or where (2) you put "cat grooming service" in the keywords field or some other field.
To me, it's neat to see where Google sometimes pulls this stuff from. Of course, they strip out city names, so there really is no point in including those. It also goes to show that it's usually worth filling in those listings as completely as possible.
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