A few months ago, a number of stories came out covering the iPad's remarkable-seeming ability to share the GPS of a tethered iPhone. Apple's latest location database FAQ confirms the suspicions I voiced at the time: there's no actual GPS sharing involved. Instead, Apple is using the simultaneous GPS and Wifi radios on your iPhone to "crowd-source" what I'll call a "skyhook" database (after the first company to publicly use the technique). This correlates Wifi base station identifiers with their GPS locations in real time -- including (most likely) the real time location of the "base station" created by the iPhone when it is in tethering mode. All nearby Apple devices use this database to compute their location (based on all visible wifi base stations). Since the nearby device sees the iPhone's "base station" and the iPhone is busily updating the position of that "base station" in real time (along with all the other base stations the iPhone can see), the iPad (lacking a GPS of its own) gains the apparent magical ability to compute a very accurate position for itself.
The real interesting part of this story involves user consent and privacy—do iPhone users generally know that their devices are registering their location in Apple's database in real time whenever tethering is turned on? Any device which can query Apple's location database for the MAC address of your iPhone can track the position of your iPhone whenever you are tethering. That's basically what the magical ability of the iPad/iPhone pair tells us. Did you know that?