people do fake their location.
I tried this weekend. I created a different account, and went in from a complete n00b perspecrtive. the criteria was no root, should not take more than 10 mins to set up and I need to find everything in one place.
10 mins later I was walking around central park on my phone (different account) I jumped from there to Paris because why not. caught pokemon and turned pokestops in both locations. within minutes of each other.
then I jumped to LA, and suddenly I could not turn pokestops or catch even a CP 10 weedle it kept breaking free and running.
so I uninstalled the gps spoofing ap, and removed the fake acount from my phone, put my account back on and caried on playing for real.
its so easy to do, and if you dont do silly things like jump insane distances quickly they wont catch you.
this was done to see how easy it was. the idea was simple, can my Fiance's sister do it, she still wants her blackberry back because android is too difficuilt to understand for her. so I thought it would be a good trail. the conclusion, anyone who finds that video on yourtube can do it, in 10 minutes. because the video is 5 min long, and the process takes 5 mins to set up (including download time of the app)