A location context specifies a circular geographical area in which it is active. It is formed by a centre point (latitude, longitude) plus a radius around that point.
The most accurate provider available (around +-10m), but its performance degrades quickly indoors and it uses a relatively large amount of power.
To set the frequency of GPS fixes, see Menu->Preferences->Monitor. GPS Check Time determines the check frequency in seconds while the device is awake, Off Check Time while the device is asleep.
GPS will only be used for a particular context if it is specified in the location edit screen. It will never be used if no context needs it.
Network will only be used for a particular context if it is specified in the location edit screen. It will never be used if no context needs it.
Location fixes are ignored if their accuracy value is greater (meaning: less accurate) than the context's radius. That means that specifying a radius of e.g. 100m will exclude all fixes with an accuracy of greater than += 100m.
This is mainly intended to reduce bouncing caused by degradation in the GPS signal in areas without a good view of the sky.
You can see the accuracy of the fixes you are getting using the variable %LOA, e.g. in an Alert/Flash action text perhaps triggered by a widget.