The "Set Time Zone Automatically" feature in Windows 10 uses the location information from the Windows Location APIs, which have different levels of accuracy based on where the location information was obtained.
Per the documentation on MSDN, the accuracy is as follows:
- GPS : within approximately 10 meters
- Wi-Fi : between approximately 30 meters and 500 meters
- Cell towers : between approximately 300 meters and 3,000 meters
- IP address : between approximately 1,000 meters and 5,000 meters
You are probably only getting accuracy by IP address, which you can read more about in this article.
While there's a solution for overriding your location in the Maps application (as described here), unfortunately it's functionality is currently limited to the Maps application itself. Currently, there is no mechanism to feed this location back into Windows such that it is used to detect your time zone. If such a feature is every created, I'll be sure to come back and updated this article accordingly.
Update: As of the Windows 10 Anniversary Update (August 2016), you can now change your default location via the Maps application, and this location will indeed be used by the "Set Time Zone Automatically" feature. You may need to turn the feature off and back on again for it to pick up the location change, but it does indeed use it now.