Just checked this.

I took some pics on a regular digital camera (no GPS) in Indore. I uploaded them from New Delhi a few weeks later. And now FB is asking me "Were these pics taken in Indore?". Crazy shit.

Update - I dug through my FB updates. Just before leaving for airport, I updated my status to "Off to Indore" and after coming back to New Delhi, I had some status updates about my office and a local park. Facebook is probably using the the timestamps from image and relating it to locations using some heuristics like status updates, IP addresses, image recognition etc.