From the documentation[0], "The location parameter, in conjunction with the locationRadius parameter, defines a circular geographic area and also restricts a search to videos that specify, in their metadata, a geographic location that falls within that area. The parameter value is a string that specifies latitude/longitude coordinates."
Looks like you can add a location to your video in the Advanced Settings panel in the video settings: http://i.imgur.com/AtnTu7F.png
As far as I can tell, location is not added by default (I tried uploading a video that has embedded location data and that location was not added to YouTube; I would have to add the location manually).
[0]: https://developers.google.com/youtube/v3/docs/search/list