Let's give Fuzzy the benefit of the doubt.
The
iPhone (no suffix etc), also known as the iPhone 2G, does not have GPS. It relies exclusively on WiFi and cell tower triangulation. So if Fuzzy was being pedantic with the naming scheme, then the statement is correct, if somewhat misleading.
As you noted, the
iPhone 3G does use real GPS satellite tracking where available, but it uses the assistance of WiFi and/or cell tower triangulation to speed up the process of getting its initial fix on the satellites, and to get a fix where there is no effective line of sight at all.
So you're both right.
To the OP:
Come to think of it, I don't even know how a real GPS system works.... does it have all of the data installed or does it need connection?
GPS by itself is a purely one-way flow of information, from the satellites into your GPS receiver. The result of this communication and the associated mathematics is essentially two numbers, a latitude and a longitude. During the entire process of computing these two numbers, no data ever flows from your receiver back into the GPS satellites (or into any other computer system, for that matter).
With GPS substitutes such as WiFi and cell tower triangulation, there may or may not be a requirement for two-way communication of data in order to calculate your position. But the effective result is the same, a latitude and a longitude.
Once you have the latitude and longitude, it's up to the specific implementation to do something useful with the information:
-The oldest stand-alone consumer GPS handhelds literally just displayed the latitude and longitude on the screen, and left it up to a human navigator to plot their position on a paper map.
-Some applications (such as tracking devices) actively transmit the resulting latitude and longitude back to a central service to keep track of the equipment's location.
-Some services (such as the Google Maps application on the iPhone) attempt to plot your location on an electronic map, but the maps are stored on a remote server and the device needs a two-way data connection to download them on-demand.
-Other GPS handheld appliances or applications (such as TomToms) keep a copy of their maps right in the device, so they can plot your position without needing to download any further data. These maps are typically limited to a certain geographical area to keep storage space requirements reasonably small.