Much of the chatter I have seen about this issue talks about targeted advertising and user tracking. While I have no doubt that both companies are very interested in doing that I don't think this particular disclosure is about that. Message targeting is more likely to happen within applications where the user has granted explicit permission to push location based advertising and alerts.
I think this is all about improving Enhanced GPS services. My guess (and it is just a guess at this point) is that the phones are reporting back GPS location, Cell tower IDs and signal strength, and all visible WiFi base stations and signal strengths. Given enough of these sets of measurements, they can provide extremely accurate location information given only WiFi information (which takes much less power than GPS and also works indoors). It has been well established that multiple companies, including Google, are building such databases from trucks driving around the world (see my last post).
One purely anecdotal data point I have is from my WiFi only iPad. For background, I live on a fairly large lot and the only WiFi I can detect is my own. One of the first things I did with the new iPad was to open up the map application. It almost instantly centered the location reticule on my house. The only available location information was from the WiFi. I know that the Street View truck has never been through my neighborhood, and doubt that any others have been. My suspicion is that phones used within my house have been providing the correlating data between my physical location and my personal WiFi base station hardware ID.