It turns out that your iPhone keeps an unencrypted datafile containing your approximate location. You can review this datafile by using this application.

So the first question is: "What? My iPhone is 'tracking' me?" And the answer to that is, "yes, generally, but not to 'Enemy of the State' levels." Here, for instance, is what my iPhone knows about my location:

Some things to note:

  • That grid is pretty coarse: at least on this island,  the iPhone isn't tracking within more than a few blocks
  • I've used my iPhone GPS many times in Hilo, so the coarseness of the grid is not limited by data
  • Where I work -- which has notoriously bad AT&T coverage -- is a curious "hole" in the grid.

These 3 things support (but do not prove) a benign explanation: the file is a cache of locations that can be used to speed the responsiveness of your iPhone's mapping.

So far, there's no indication that this file is in any way sent back to Apple or other parties, but it is a privacy risk, since the file is not encrypted. Apple should definitely explain the file and make it more secure in future releases. But for now, no need to panic.