Modem/routers don't provide any location data. Location data is usually provided by one or more attached devices, usually smartphones with GPS sensors. They send this data (GPS location, Wi-Fi SSID and router MAC address) to one of several geolocation databases. Apple and Google maintain their own databases for iOS and Android devices respectively. There are also several other third-party, geolocation databases. I'm not entirely sure how they are updated but I believe they use several heuristics to get a rough fix on your location.
If you place the smartphone in a location where it can pick up the GPS signal while still connected to the Wi-Fi network, the Apple or Google database will eventually be updated. It may take several days for this happen.
