Why couldn't facebook instead facilitate that same small model railway business advertising on the railway group pages, and non-facebook pages about model railways? Why not just tie the ads to the content of the page visited?

With targeting you're correct that facebook (and others) can instead follow the user around the internet and show them (perhaps) relevant ads on sites that may be cheaper to advertise on (e.g. some crappy link-bait / SEO built site) which may be more effective than an ad otherwise shown on _that_ click-bait site but perhaps less effective than a railway ad shown on a railway related website.

Facebook can transfer revenue from the higher quality site on railway topics to lower quality sites that may just be click-bait and capture nearly all that difference for themselves.

Bottom line is you de-fund high quality sites (railway hobbyist sites in this example) and encourage surveilling individuals for only facebook's benefit.