I don't know if the recommendations are based on tags or some other hidden keywords or an Amazon-style "people who listened to" sort of thing, but the recommendations I get based on the Australian artists I listen to are based entirely on geography. Apparently Augie March is "super similar" to Grinspoon and Machine Gun Fellatio and Josh Pyke, but not remotely similar to Wilco, Palace or Radiohead. It's like saying Iron & Wine, MGMT and My Chemical Romance are super similar to each other.
You're right about the Amazon thing, that's how it's done here too. Maybe tags also matter, not sure. It's definitely not based on geography though, even if it might seem like it. But I definitely know what you mean, I guess it's what happens when a band is mostly famous in a certain country/region, don't really know what can be done about it except for people manually voting for similar artists.
Australian music recommendations