How do I go about targetting more than one geographic area. I live near several cities that I could target. Do I need to make several pages with each location in it then make sure that my content is not too alike to avoid penalties?
It would depend on how you want to target them. Do you just want good search engine rankings for a specific phrase when people search from that city? Or does your niche have people searching for phrases that include their city name? If people do searches that include their city name, yes you could build a separate landing page for each of them. The content would have to be unique and you would have to work at building links to each of those landing pages.
Yes that is sort of the idea. If I want to provide services to places X, Y, Z I would need to build 3 pages optimized for "services in X", "services in Y" and "services in Z." IS there any special tools for getting keyword research for your area as some are not showing up in wordtracker ect.