When Step is open, the steps are detected directly from the pedometer sensor of your smartphone. Depending on the model and brand of the smartphone, the sensor will have different sensitivity and quality.
When Step is in the background or closed, the steps are detected by GoogleFit or Health. GoogleFit and Health store the steps through their APIs and pass the information to Step, after checking that the steps are authentic and not caused by oscillations or movements.
GPS is not used to avoid excessive battery consumption.