The official response is that location data is used for "regional dialects"... makes sense, but is IP geolocation not close enough? The screenshot there doesn't make it clear but is this coarse or fine location data? My keyboard, no matter how smart, shouldn't need to know where exactly it is on Earth to within a few meters. Within a state or town, fair enough.
I think this is poor user UI. I mean, in this day in age when so many people travel through different countries weekly on pleasure or business, their keyboard layout changes accordingly? That doesn't make much sense.
If my keyboard thinks, just because I'm in New York City, that I meant to say, "Stand on line" instead of "Stand in line" it's insane.