If you look at the API reference for Android location you will see the explanation for the accuracy reading as:
We define accuracy as the radius of 68% confidence. In other words, if you draw a circle centered at this location's latitude and longitude, and with a radius equal to the accuracy, then there is a 68% probability that the true location is inside the circle.
In statistical terms, it is assumed that location errors are random with a normal distribution, so the 68% confidence circle represents one standard deviation. Note that in practice, location errors do not always follow such a simple distribution.
This accuracy estimation is only concerned with horizontal accuracy, and does not indicate the accuracy of bearing, velocity or altitude if those are included in this Location.
If this location does not have an accuracy, then 0.0 is returned. All locations generated by the LocationManager include an accuracy.
Per this post it looks like getAccuracy and distanceTo() methods do not take each other's measurements into consideration. I would follow the advice in the post and check out the GPS Benchmark application for better information from your specific hardware. Hope this helps!: