The app is CatchMeIfYouCan and its actually quite simple. It allows you to manually designate your actual GPS location. Once you choose a location all apps that you open will believe you are there. Before opening the app you need to turn off your GPS.
The potential reasons why you might use this are endless but as you might have already considered, its most popular for cheating on Foursquare. You could also use it as a security application. You could disguise where you are if you don’t want Google Latitude friends or the like to know where you are.
Also when you are uploading pictures or videos etc to social networks you may be more likely to geo-tag your uploads if you could manually select your location. It would allow you to upload a Disneyland picture, geo-tagged from Anaheim while you are home in New York.
What other purpose would you have to fake your location?