How did my iphone know the location of pictures I took with it?

I'm in another country, so I turned off cellular data (so I won't find a large bill upon returning home). And I did not have Wi-Fi at the locations where I took pictures. So I was a bit shocked that specific (correct) locations were tagged to my photos. In trying to find an answer, I saw that GPS may be used to figure out the location. And that it doesn't use cellular data. And I won't find any surprise fees later on. Is this true?

It's true. You can disable it in settings.

Click on Settings > Privacy > Location Services > Switch off Location Services(slide) > Click Turn Off

Although turning off location services for the phone will stop it it also disables features on the phone, i recommend going to settings, finding the camera app icon in location services and turning off just that stops the geo locating of photos, its a feature used in iphoto to help you keep track of your events though along with the date and time information.

GPS is the primary method for determining location in the iPhone and other phones. It operates whenever an application tries to use it, provided that you haven't disabled location services. The camera app uses location services to record your location when you take pictures. If you don't like this, turn off location services for the camera app in Settings > Privacy > Location Services.

Yes, the GPS is what geotagged the pictures & no it doesn't require any internet access to do so. So you will not be billed for simply using the camera.