Deep down in the O/S you will find a location application programming interface. Below that you will find code that converts the existence of Wi-Fi and cell tower radio signals into a latitude and longitude. That (and a few other things) has been my job for the last several months.
This is just one small piece of a very large and impressive picture.
As Sean just said a minute ago in an IM, “Wow. You showed me some neat stuff Friday, but I was still impressed by today’s reveal. With this piece of the puzzle, I get a tingling feeling up and down my leg. Like we really might be entering a new golden age for Microsoft.”