What is Wifi-Networking option under system location services in iOS 7?
Crowd-sourced Wi-Fi and cellular Location Services
If Location Services is on, your device will periodically send the geo-tagged locations of nearby Wi-Fi hotspots and cell towers in an anonymous and encrypted form to Apple to augment Apple's crowd-sourced database of Wi-Fi hotspot and cell tower locations. In addition, if you're traveling (for example, in a car) and Location Services is on, a GPS-enabled iOS device will also periodically send GPS locations and travel speed information in an anonymous and encrypted form to Apple to be used for building up Apple's crowd-sourced road traffic database. The crowd-sourced location data gathered by Apple doesn't personally identify you.

iOS 7: Understanding Location Services

See also How to Protect Private Info Stored on Your iPhone.