How GPS actually works is quite interesting. There are 27 satellites that orbit the Earth about 2x a day (24 active ones and three spares all owned by the U.S. Military). These satellites transmit just two pieces of information:
1. the position of the satellite and
2. the time – to the nanosecond via a pseudo-random code
How GPS receivers use this information is fascinating and described quite well in a white paper:
Key to this calculation is the measurement of the distance of each satellite from the GPS receiver. GPS satellites all have atomic clocks on board, which are extremely accurate. Each satellite sends a pseudo-random code using radio signals at exactly the same time, which is simultaneously generated by the GPS receiver. By comparing the pseudo-random codes received from each satellite to the receiver’s own version, the delays measured can be used to calculate the distance from each satellite.
By triangulating on three or more satellites the GPS receiver is able to calculate location. If you think about it – it is quite amazing that your phone or watch has the computing power to make all the calculations necessary to determine your location.
GPS receivers have to have very accurate time and it obviously doesn’t have an atomic clock on board. Time is synchronized with a fourth satellite in order to keep the GPS receiver clock very close to the appropriate time.
Interested in reading more about GPS: http://www8.garmin.com/aboutGPS/