Apple is not tracking the location of your iPhone. Apple has never done so and has no plans to ever do so.
The big hubbub that arose last week around location tracking within the iPhone has now received its due response from Apple itself. Firstly, the Cupertino company claims it does not, and has no plans to, track users' iPhones. What it's actually doing is "maintaining a database of Wi-Fi hotspots and cell towers around your current location," which are then used to provide speedier calculation of your position when you want to use the device's maps or other location-based services. The data collection that was recently brought to the public attention represents, according to Apple, the location of WiFi hotspots and cell towers around you, not your actual iPhone. Still, the fact iPhones have been shown to store as much as a year's worth of data is considered a bug by Apple, who plans to limit that period to a week in a future software update. The additional issue of data being collected after users turned off Location Services is also a bug, also to be fixed by Apple in that upcoming update. Left unanswered, however, are the questions of when Apple "uncovered" these bugs, as it claims, and why the fix for them is only coming now. Specialists have known about this behavior since at least September of last year. Either way, the software remedy is promised over the next few weeks, while the next major iteration of iOS should encrypt the cache file that's been the subject of all the scrutiny. You'll find the full Q&A after the break.
P.S. -- One of Apple's answers seems to disclose an extra bit of new information: "Apple is now collecting anonymous traffic data to build a crowd-sourced traffic database with the goal of providing iPhone users an improved traffic service in the next couple of years."