Google has magnanimously offered to ignore Wi-Fi hotspots that have been renamed with a trailing "_nomap" to let the snoops know what you don't want them to know.
Google logs the location of Wi-Fi routers to aid its location pinpointing services, as knowing the nearest router can provide a coarse location as well as making it easier to get a GPS fix, but even Google accepts that not everyone wants to share.
In the explanatory blog posting, the Chocolate Factory's "Global Privacy Council" explains that Google considered providing an online tool allowing people to opt out, but rejected that idea as it couldn't prevent malicious individuals from forcibly opting out those who didn't want to opt out. We read that to mean Google couldn't prevent hackers opting everyone out automatically, but either way Google has decided name changes are what's needed.
Google's Streetview camera-cars logged the location of every Wi-Fi hotspot they passed, occasionally (and accidentally) grabbing a chunk of data too. Those records remain intact, but are constantly updated when someone uses Google Maps and takes the time to get a GPS fix.
Android phones regularly send back updates to the Googleplex, keeping the locations of every Wi-Fi router (with a publically broadcast SSID) constantly updated and making it easier for everyone else to work out where they are.
GPS works well, but has a hard time getting a signal indoors as well as taking a while to get a fix. If you know roughly where you are then the GPS calculations get a lot easier, so an Android handset first scans for local Wi-Fi routers and asks Google for a rough location based on those (and the cellular base stations, which are kept updated the same way). That rough location is then used to simplify the GPS calculations.
Unless of course the local Wi-Fi router is tagged "_nomap", in which case Google promises to ignore the information. Local users of Google Maps will just have to step outside and learn to be patient. ®