A recent report claimed that Facebook users who kept their location turned on would be offered friend suggestions based on where they were. Facebook has since refuted these claims and explained how the “People You May Know” feature works.
Facebook said, "We're not using location data, such as device location and location information you add to your profile, to suggest people you may know. We may show you people based on mutual friends, work and education information, networks you are part of, contacts you've imported and other factors."
A spokesperson for the social network had previously acknowledged that location was just one of the factors used to suggest friends, but later said that the company had dug into the matter and found that location wasn’t used. This investigation led to the updated statement above.
This all came about because some Facebook users were getting suggestions of people they might know despite only sharing a space with them briefly. We may never know exactly how Facebook suggests people as friends, but it claims that location is not one such factor.