AFAIK on iPhone and Android it uses the internet/data to download the maps, and GPS to display your location with the blue circle.
The link that ghost101 posted is about the map area precaching,
As of Google Maps 5.8 (I think, or just get the latest) you can preload areas using your wifi so that when you're out it won't use your data plan to download maps. You can load up to 10 areas (each of 10 mile radius).
However this only works on Android and you need to enable the "Precache area" option in the menu under the section Labs.
Clearing application settings wipes all of this as well.
It's a bit fiddly too, sometimes my precache areas overlap and being a bit OCD about it I like to get them perfectly next to each other.
After a long battle with it I managed to precache London and a bit of the outskirts too.