How does precise GeoLocation in HTML5 work?

"whether they also store a huge database of wireless AP points,

Well, that's one way of how it works, according to their blog:

Google Maps asks your web browser for
your location. Typically, your browser
uses information about the Wi-Fi
access points around you to estimate
your location. If no Wi-Fi access
points are in range, or your computer
doesn't have Wi-Fi, it may resort to
using your computer's IP address to
get an approximate location. As you'd
expect, the accuracy of My Location
varies with your location, and in some
cases, Google Maps may not be able to
provide a location at all.

W3C Geolocation API, however mentions

The Geolocation API defines a
high-level interface to location
information associated only with the
device hosting the implementation,
such as latitude and longitude. The
API itself is agnostic of the
underlying location information
sources. Common sources of location
information include Global Positioning
System (GPS) and location inferred
from network signals such as IP
address, RFID, WiFi and Bluetooth MAC
addresses, and GSM/CDMA cell IDs, as
well as user input. No guarantee is
given that the API returns the
device's actual location."