What is a "Location" in a File Manager?
In a file manager that lists files of folders in its main pane, a "location" is typically a folder whose contents can be displayed in its main pane, although some locations aren't folders. The name of the current location often appears on the title bar of the window and on the address bar as well.
For example, when you open the "Downloads" folder on Windows using the File Explorer, the "Downloads" folder is the current location. The File Explorer isn't listing your downloads, it's listing the files inside of the "Downloads" folder.
A location is almost always a folder. In some cases, it can be a zipped folder, which isn't actually a folder, but a kind of file that kind of contains files inside of it like a folder would. There may also be some locations you can go that aren't folder but special lists of items. For example, clicking on "My Computer" (nowadays, "This PC") will show you a list of filesystems that your operating system can access, e.g. the filesystem that exists in your hard disk or SSD. In this case, "My Computer" isn't a folder. It's a special location.
Behavior
Filepath
As the current location is a folder, it has its own filepath in the file system's hierarchy. Modern file managers hide this filepath by default, displaying instead buttons to navigate up in the hierarchy in the address bar. It's possible to view the filepath of the current location by clicking on an empty on the address bar.
Context Menu
Typically, the current location will have its own context menu that's accessible by clicking on an empty space in the main pane. That is, the main pane has a list of files and subfolders, that typically appear as icons. If you click on an icon, the context menu that belongs to the file or subfolder represented by that icon will appear. If you click on an empty space, the context menu that belongs to the current location will appear.
This context menu contains different types of options.
The first type changes how the contents of the location are displayed, e.g. ways to sort the files in alphabetical order or by file size, for example. This doesn't modify the location, it just changes the behavior of the file manager.
The second type of options modifies the location. For example, if you choose to create "New" files and folders, those new files and folders will be added to the current location.
There may also be a third type that does something using the current location's filepath. For example, "Open in Terminal" will open a terminal and automatically change the current directory of the terminal to the current location. In some cases, it's also possible to have an "Open With..." item that lets you open the whole folder using an application that doesn't open files but folders instead, e.g. VS Code can open a folder as a workspace.