If you go one mile west of my home you would get to neighborhoods with ocean views.. the value can be as much as 1 million more for a similar property. So to answer your question.. Zillow is not very accurate in areas that are not part of a large development with similar homes...but they do provide some good information.
To add a note, Real Estate Agents do this for a living...daily. Zillow estimates are really a stretch of the imagination in most professionals opinions for the reasons Ute discribed. - Sure, some real estate agents can make a mistake but their data is fresh, acurate and basically the same as a Bank Appraiser would use as part of their analysis... they also use MLS data.
The reality is there are two reasons to buy - #1 is pain (i need a house for whatever reason) or #2 EGO. (I want "that" house) Which buyer do you think pays the premium price.
#1 rule of pricing - you house's value is worth what someone is willing to pay. Sometimes that is more, and sometimes that is less. We use "comps" to give us a basic understanding of what others are paying but that is certainly no guide.