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Here's how: Go to Settings > Privacy, then select Location Services. Select an app, then turn Precise Location on or off.
Unfortunately, doing so isn't very straightforward. There isn't a “fake GPS location” setting built in to either iOS or Android, and neither do most apps let you spoof your location through a simple option. Setting up your phone to use fake GPS only affects your location.
As high-tech as your iPhone and its battery may be, a navigation app such as Google Maps and Apple's own native Map app typically runs in the background of your system. This hidden activity forces your smartphone to search for a GPS signal continuously, thus, pulling energy from your phone's battery.
No. Applications cannot run in the background for over 10 minutes, except for a few certain situations (VOIP, playing audio, etc.) An iOS app which plays audio will keep playing audio indefinitely in the background so long as the audio is playing.
Yes, it is possible. Your application can ask to be notified of significant location changes or to simply continue using the GPS while executing in the background. The former—the approach recommended by Apple—uses less power at the cost of accuracy (this blog post indicates that the updates are accurate to roughly 500m), while the latter is as accurate as the device can manage. This is all detailed in the iOS Application Programming Guide and and the Location Awareness Programming Guide.
If you simply want your application to be notified when the device moves into a particular region, you may want to look into CLLocationManager's startMonitoringForRegion:desiredAccuracy:. If the device moves into a particular geographical region, your app is launched (even if it's not running!).
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