"This is because Google Play services passes on your location to installed apps via an API. It also sends the information to Google to collect and process. Google doesn't want you to turn this off."
Of course you can not turn off a location permission for Google Play Services because it is the source of location information not a consumer.
The 'Location' section in settings determines how and if Play Services establishes the device location. The 'Google Location History' setting controls Google's recording and remembering of your location.
If you have ever agreed to the otherwise constant nagging to use 'High Accuracy' location mode (which is a lie) then Google will constantly record your GPS location if it is enabled and all the WiFi APs you can see and send it all to Google (claimed anonymously) to help them maintain their WiFi AP location database. The only way to remove this nagged for permission is to delete all Play Services data from the App settings.
If your Android device with location enabled connects through a WiFi AP Google being the fuckers they are will use that information to accurately Geo-locate your AP IP address without asking. Google search on my PC knows which small town I am in while some other geo-location services are not even getting the country right.
The above assumes you trust Google to do what they say they do - which I don't.