Earlier quoted context omitted.
Nav apps on phones will use dead-reckoning if they don't have a GPS signal, so they don't really even need the wheel-speed sensor, but I'd guess they use it just to increase accuracy.. e.g. in a long tunnel.
Increasing accuracy is a wild understatement. Dead reckoning with mobile phone hardware won't give you a usable result for long. Maybe your experiences are from tunnels with dedicated beacons to tell the phone where you are.
On a side note I've personally had bad experience with beacons in train tunnels telling me I'm miles away from where I'm actually at.