GTD actually specifically calls for "context" lists for your actions, which is similar to locations but is slightly different conceptually.
Contexts may well be a location, but aren't always. "Home" is certainly a location and a context, but if you work from home and are in your workspace/office, do you want to trudge through all your household type actions like 'replace bulb' or 'hang portrait' before you get to those tasks relevant to the specific context you're in in that moment? In this example you'd have a context like 'home office'.
The "original" set of suggested context lists, like calls, home, office, errands etc is somewhat outdated given the advance in technology in the last several years and boundaries between contexts now overlap somewhat. But the idea remains the same.
For example, I don't have an "office" context list because I can work anywhere I have my laptop. I do however have lists for certain apps I use at work and spend only some of my time in, and I have a list for "documents" which includes anything I need to work on in excel, word, PowerPoint, and a list for any emails I need to send. The contexts here aren't locations, but a particular program I happen to be using for the context I'm in. I do have a "home" list but it doesn't contain anything I can do on my PC, professionally or personally, even though my PC is obviously in my home. And so on and so on.
You need to define the hard edges between your contexts for yourself.
This depends on what works for you. There's no rigidly defined strategy or structure that applies across the board. To paraphrase Allen, you should have as many lists as you need but no more than you can manage. In my example above, it's enough for me that all my writing/basic MS office suite work is in a 'documents' context list, but that doesn't make it 100% right for everyone. It's acceptable to have "excel", "word" "PowerPoint" as separate context lists if you feel that works. GTD is also an evolving process, so feel free to try it out and switch it around if it doesn't work.
A simpler example may be: I'm not a massive fan of DIY and currently rent my place, so it's unnecessary for me to have a "DIY/hardware store" context list. On the rare occasion I'd need to buy nails, it would go on my "errands" list. However, if I was a DIY fanatic and was at the store every week, it's likely the amount of actions I'd have would warrant a "DIY store" context list, which would keep all those items (and thus the 'psychic bandwidth' associated with them) separate from other errands, like "buy cotton candy". The point is your system should be set up in a way so you don't have to worry about cotton candy while in the DIY store but that both are clarified and organised external to your mind in a system you trust to do the legwork of that worry for you.
The switch from using type/category lists to context lists felt very counterintuitive at first but it was seriously transformative when I got that lightbulb moment where I couldn't believe I'd been working any other way before that.