Location and Mapsets
A LOCATION is some geographic extent of interest that contains data sets that must all be in the same coordinate system. Every location has a PERMANENT directory which stores some basic information about the whole location, and is a good place to park base files. You can think of a location as a data library for a region of interest.
In a MAPSET you can organize GIS maps thematically or geographically or by project or whatever. Every GRASS session runs under the name of a MAPSET. A MAPSET may be a geographical subset or as large as the parent LOCATION. Technically they are subdirectories under any location. In a networked environment with several users working within the same location, mapsets play a special role. Users may only select (and thus modify) a mapset that they own (i.e., have created). However, data in all mapsets for a given location can be read by anyone (unless prevented by UNIX file permissions). The "PERMANENT" mapset usually contains the read-only base maps like the elevation model, while the other locations are readable and writable by their owners. The "PERMANENT" mapset also contains some information about the location itself that is not found in other mapsets (projection info etc.), thus it must exist in every location.
GRASS' logical database structure (one projection definition per LOCATION) avoids problems such as the ones introduced with the "on-the-fly" reprojection ability (typically problems caused by mixed datums) which is present in most GISes.