So, essentially, when you ARE using WiFi and GPS, Google's database of BSSIDs is updated with a geographic location associated with that BSSID, as you've assumed. The BSSID operates on a lower layer as the IP stack, you don't even have to be connected to an access point to receive these broadcasts. It is therefore "public viewable" if the BSSID broadcast is enabled, which is the default for most access points. A BSSID is like the MAC address of a access point that gets broadcasted by that access point. Google and others like Apple and Skyhook build a Database which links WLAN BSSIDs to a geographic location. Taken from “How does Google Maps estimate my location without GPS?”: Google uses BSSID information from your WLAN Access Point to get an approximation of where you are located, even with GPS and WiFi turned off.
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