Location sales is where the item physically gets fulfilled from. Whereas Source sales is where the item was purchased.
For instance, this comes into play mostly during a sales order. If a customer buys an item at Store A, but store Store B fulfills the order (has the item in inventory), the source sale would be Store A and the location sale would be Store B.
This can also happen with pos tickets where items can be purchased from Store A but the sales may be credited to Store B. This often is the explanation for when the Dashboard (Source Sales) and the Daily Summary (Location Sales) have different sales amounts.
For more on changing the source of a sale, you can read more here.