It provides services based on your location.
Seriously, applications ask for your permission to use your location all the time. Facebook, Google search results might be tailored to your geographic location, mapping software, weather forcasting apps, the list is endless. Sure, a lot of hardware uses gps to provide your location to apps/websites, but geolocation based on IP addresses is also done... which is what the location based services on the Fire are limited to (but I'm guessing future incarnations of the Fire will have gps). If you don't make use of location based services (or use apps that make use of it) just turn it off and be done with it.
7.3.0 to 7.3.1 has to be some pretty minor bug-fixes. Not likely anything feature-related.