There are really two parts to this. As a whole, certain things in the system and certain apps will request your location from time to time (if you allow it). If GPS is enabled, it will get a better fix. If it's not, it will just use cell tower triangulation. If you go to menu->settings->location, you'll see you have two options:
Use wireless networks
Use GPS satellites
If you uncheck GPS satellites, anything location based will still be able to find you, but it won't be extremely accurate. It's good enough in most cases. You can, of course, turn off location awareness altogether if you don't want anything to ever be able to figure out your location. It's not going to make much of a difference on batter, though, just leaving wireless network location enabled. That being said, GPS will not use any battery unless it's being used. What that means is, you can leave GPS on all the time, and as long as you don't use anything that regularly checks the location, you won't use any more battery than if you just turned it off.
