Translation:It is hot in the South this time of year.
"It refers to the countries around the Mediterranean."
Not necessarily, it refers to what is south of where you are right now. The sentence could be used by two danes traveling in the U.S for ex.
BTW. if you are in denmark you could not use it to talk about the southern parts of the country, but that is only because the country is so small that the weather is about the same at any given time.