It's probably a combination of techniques to be honest. They do have some unprecedented access to contextually heavy data, as well as an unusually large base of free labor to supervise the learning...

My creepy moment came when It correctly pointed out the exact location of this photo:

http://www.flickr.com/photos/40127665@N03/4788700749/in/set-...

I was in the middle of Costa Rica. For fear of roaming charges my phone was not on, and I never made a status update. The photo was taken on a D40 at the time, so no location exif data, and frankly the the picture is kind of generic.

My best guess is it used the other photos in the album to gain contextual information. For example this photo was in the same album:

http://www.flickr.com/photos/40127665@N03/4789329722/in/set-...

this, to me, would be extremely easy to recognize.