Google latitude is a service Google offer to its mobile Google Maps customers. Latitude is able to optionally transmit and/or track a cell phones(and hence the owners) location.
It’s accuracy depends directly on how accurate the phones location tracking is. Some phones have fairly accurate GPS systems allowing for turn by turn applications, others are ‘approximations’ based upon triangulation of the adjacent cell phone towers. Nothing surprising or earth shattering here, however I was interested how far off the triangulation location is on the Blackberry 8830. Even if you have very accurate GPS, how much can you depend on the present location of contacts you share location data with?
If your contacts don’t have accurate GPS on their phones, their location is very approximate. In addition to preciseness of GPS functionality of the phone itself, Google Maps/Latitude drops into low precision mode when you are running it as a background application. See here. So even if you do have great GPS, results may not be that accurate.
Density of cell towers where you are located appears to have the greatest impact on accuracy if your phone uses triangulation. At home it is accurate within 1/2 mile most of the time. At work near the airport at Gallatin TN, I found it can be off by as much as 10 Miles!! Latitude History maps are shown below.

Poor accuracy when in low density cell tower zone

Reasonable accuracy with a higher density of cell towers
In the map on the left I was stationary for several hours at a location with a poor signal. The map on the right has a tighter cluster of points close to my home and the route to work, where I had a stronger signal and was closer to more cell towers. Google’s website indicates that it will typically default to the local cell tower location when you run it as a background application. If that were true I’d expect a cluster of points at the same spot while I was present at work and not that mobile. Clearly that did not happen.
Latitude will be of more value when all cell phones have true GPS. That day hopefully is not too far away. My next phone from Verizon maybe the Droid, I’d hope it to be more accurate than the 2+ year old Blackberry 8830 I currently have.
Update:2010-01-23 – I got the Droid.
On the Motorola Droid the GPS while Google Maps is running in foreground is wonderfully accurate, and even has the ability for a digital compass pointer. The problem comes when it runs in background, as I described earlier Google Maps drops into low precision mode, so I found my location could be off by several miles. No better than the Blackberry 8830 without GPS. The features on the Droid are superior however. Better map resolution, better traffic data, more map layers. I found the GPS Status App for the droid to be a nice app for troubleshooting GPS issues and it doubles as a compass and altimeter. The droid is accurate to 6 feet according to the GPS Status app.