I have a site that targets a different city per page.

I have coded the same top and bottom ad into the page design so that the top and bottom ad show for each page.

My question is each ad code relates 20 different cities.

Would i be better having 1 ad code per city and coding the ads into the actual page?

Reason for asking.

having an ad specifically targeted to a city i.e. houston allows advertisers to target this ad block. Which they cant do if the ad block relates to houston, texas, las vegas etc.

Or I might be wrong and it doesn't matter

Adsense shows ads as per content, if you page is about houston then it automatically show ads related to adsense. However, if you getting much traffic on a particular page then I suggest you to use adsense channel feature and put that channel for advertiser on adsense to increase revenue.

Yes it only matters for tracking. Adsense "tries" to find matching ads that "fit" your content...