More modern look coming this fall.
Skyhook's Wi-Fi Location Technology for iPhone/iPod touch
Skyhook Wireless was formed in 2003 and uses a database of Wi-Fi hotspots to determine your geographic location. The process is explained:
"Every Wi-Fi access point, whether public or private, sends out a signal every second or so, like a lighthouse. We pick up those signals and use our technology to calculate your exact location."
While Wi-Fi hotspots are detected based on these signals, no direct connection is made to them. To seed the system with data, Skyhook sent teams of drives around the US and Canada to map out hotspots. They say they have 70% of North America covered, and are currently adding Europe and Asia. Unlike GPS, Skyhook's system works better indoors and in urban settings.
Of interest, Skyhook generally receives a payment per device sold with the technology, and this fee may be built into the fee Apple is charging for the iPod touch software update. For the iPhone, Apple starts with Skyhook's Wifi database first, and if unable to find a hotspot, it then falls back to using less-precise cellular tower information provided by Google.
A company called Navizon had provided very similar technology for iPhone users as an unofficial 3rd party application.