Apps ask to collect your location data for a variety of reasons. They may use it to give you maps, coupons for nearby stores, or information about who you might know nearby. Or they may provide location data to ad networks, which combine it with other information in their databases to target ads based on your interests and location.
Technically, very few apps absolutely need your location. Granting permission to use your location data is just a convenience for you, since it bypasses a manual step that you’d otherwise have to take. For example, you could manually enter your zip code for apps that normally would use your phone’s GPS (like weather apps). But most of the time, it’s easier and faster to have apps know your location.