They can't, obviously. Is this some kind of trick question?
Your location can be used for ad targeting in other contexts. For example if you granted location permission to google.com in your browser, Google gets your location at the time you do a query and uses it both to provide relevant results and to target ads. And if you have search history on, I assume that location snapshot would be saved along with the query in search history, which Google can see. But the comprehensive and much more detailed "Location History" that is collected constantly in the background (when enabled) can't be seen by Google anymore.
How can they use it for ad targeting then?