Where is the documentation of the options on the 'System Services' settings screen?
This Apple Support Document explains the Settings ▸ Location Services ▸ System Services screen.

The items on the list are all system services that could make use of your iPhone or iPod's  location information. While the page above does not explicitly explain each setting, Traffic uses your location to get data about whether nearby roads are congested or not  and uses your anonymized information to help update this database; Setting Time Zone uses your location to automatically select what time zone your phone should be set for; Location-based iAds uses your location to serve relevant advertisements; Diagnostics and Usage is rather unexplained, Compass Calibration uses your location to calibrate which direction your iPhone thinks it is facing, and Cell Network Search uses your location information (anonymously) to help build a crowd-sourced database of the location of cell phone towers.