Apple offered a surprisingly lengthy explanation of the mysterious location listings database found on all iPhones. The list, Apple says, is not compiled from the phone's movements. Instead, it's downloaded from Apple to the phone. And it's a subset of a huge "crowd-sourced" database of cell tower and wifi router locations. Why a year's worth? Oops, it was an accident.
This data is not the iPhone’s location data—it is a subset (cache) of the crowd-sourced Wi-Fi hotspot and cell tower database which is downloaded from Apple into the iPhone to assist the iPhone in rapidly and accurately calculating location. The reason the iPhone stores so much data is a bug we uncovered and plan to fix shortly (see Software Update section below). We don’t think the iPhone needs to store more than seven days of this data.
-Apple FAQ, April 27, 2011