If I'm not mistaken it is to access Google's (presumably large) wireless MAC address location database which like Skyhook (a competing service, also previously used on iOS devices) allows a handset to scan for wireless networks nearby and send their MAC addresses (possibly SSIDs as well, I haven't looked into it too depply) off to Google to compare to their database and fire back an approximate location based on their data collection (which you consent to help provide by enabling this feature).
To the answerer mentioning A-GPS, I think the OP was already using A-GPS and using Google Maps over a 3G connection but had Wi-Fi disabled.
I believe this technique is achieved similarly with the use of cell towers, measuring the signal strength between the connected and neighbouring towers and comparing it to a stored database (such as Ofcom's attempt available in the UK), Location Area Code (LAC) and Cell ID (CID). For anyone curious you can find these on most Android phones using the
*#*#4636#*#* code in your dialer although for whatever reason it's encoded in hex so just convert it back to decimal if you like.
TL;DR - Triangulate your location quicker using Wi-Fi signals while your GPS gets a satellite lock, A-GPS serves the same purpose but achieves this using a different method (Secure User Plane Location I think, if anyone wants to read up on it).