From the Apple menu, choose 'System Preferences'
Choose 'Security & Privacy', from the Personal section
Then click the 'Privacy' tab. If the icon in the lower-left corner is locked, click it to authenticate with your admin password (to unlock the Security pane). Check the box next to Hidden to enable it to use your location. Close the 'Security & Privacy' window
You can read more about location services on OS X 10.7 here: http://support.apple.com/kb/HT5403