My guess? Super easy.
You go to Facebook.com from mobile web.
Your friend or an acquaintance at a party does too.
Both of you are on the same wifi network or a very similar region - maybe one that you visit often or one that you're not normally at (both are interesting for different reasons). You can easily get that from IP or other network characteristics/cookies. Facebook also has your friend graph so they can tell whether you're connected in some way to some Nth degree.
That's all it takes.
It's probably not some fancy machine learning or AI (though I'm sure that's sprinkled in somewhere to get a confidence level). It's also probably not some evil scheme to trick you into sharing your location.
The sheer scale of the network alone is enough for even simple methods to be highly effective and I think that's the crux of what people underestimate and instead gravitate towards conspiracy theories.
