I can’t find the reference where I heard this, but they use the first three digits of your zip code if there are sufficient Sense participants with that value. In order to protect the privacy of other participants, I think they need at least 10 people in a group. If the zip code doesn’t have enough Sense participants, then they use the other factors on the list above within your state.
Even knowing the basics of how the comparison is made, as I just described, I would like more transparency in this comparison. The suggestions in the OP are good ones, so I have added my Like above.