You have to flash an extra file if you need the proprietary Google Play Services, at default LineageOS is just stock android without it. MicroG is is indeed an open source reimplementation of GPS, so it spoofs your device as it has the real GPS installed.
Also it uses other (local) database of network locations (UnifiedNlp) so when using a maps app it will find your location faster and more accurate than only relying on gps (the positioning system, not Google Play Service) ;)
https://lemmy.ml/comment/7407133