Start with audiences in 'observation' mode. They watch and report without restricting who sees your ads. You'll learn whether, say, past site visitors or in-market segments convert better, at zero risk to volume.
Targeting mode (restricting to the audience) makes sense in narrow cases: remarketing search ads to past visitors with different bids, or excluding existing customers from acquisition campaigns. For most local searches, the KEYWORD is the intent signal. Layering demographic guesses on top mostly shrinks reach.
The exception worth knowing: bid adjustments on observed audiences (pay a bit more for returning visitors) capture most of the value with none of the restriction.