It's a bit of both. It can use less power to poll the nearby WiFi networks (assuming the WiFi chip is already on) and compare them against Google's database col

It's a bit of both. It can use less power to poll the nearby WiFi networks (assuming the WiFi chip is already on) and compare them against Google's database collected by StreetView than to fire up the GPS chip. Though I assume that uses more storage space as you're storing a list of SSIDs/MACs rather than a GPS coordinate pair.