If you have a Snapdragon I think Location might actually still be a privacy issue, even with /e/ (and I think even if it’s off): Connections to izatcloud.net
Other than that what is happening is that outside you are using the normal GPS with a (good) few meters precision, plus probably the A-GPS data downloaded as part of the leak mentioned above but the precision is given by the GPS.
Inside where you can’t get GPS coverage you get the network assisted positioning, you can chose the provider with microG and for /e/ by default it’s Mozilla (if you enable it at all). However the precision of this is seriously influenced by how many people are using (and automatically reporting back, their phones using to enrich Google’s or Apple’s or Mozilla’s database). In practice this means that Google can get your position really well, to the corner of the room for populated places. While Mozilla will get you probably the last WiFi you’ve seen that’s in their database (or even worse it might remember just your last “real GPS” fix).