The iPhone makes good use of knowing where you are in the Maps app and several other apps and by geotagging photos taken with its camera. The iPhone exploits built-in GPS but can also find your general whereabouts by triangulating signals from Wi-Fi base stations and cellular towers.
If your iPhone knowing your location creeps you out a little, don’t fret. To protect your right to privacy, individual apps pop up quick messages, asking whether you want them to use your current location. But you can also turn off Location Services by going to Settings→Privacy. Not only is your privacy shielded, but you also keep your iPhone battery juiced a little longer.