what are system services (in location services)

It is a container for all the various modules in the operating system itself that may need to know where the phone is at or the best current time as provided by the GPS/GLONASS/Celltower/Wi-Fi tracking infrastructure. Most are fairly self-explanatory and not all need to be enabled. Use the multi-colored arrows to see which get called upon most often due to your usage patterns.

As for battery drainage, on the iPhone 6/6+ there's a secondary CPU inside to handle these things, which radically reduces battery drain. In previous models it may be an issue and you'd have to experiment in determining which to keep. But trust me, the Location Services-eager apps found just outside the System Services submenu will cause WAY more drainage and should be the ones you need to worry about.

In short, everything in there is optional and can be turned off if you wish. The only thing I have on there is find my iPhone as I do indeed want it and Activation Lock to be active (but strictly speaking, even that is your choice to use or not). None of the other features are on though. Many simple collect location based data that is sent back to Apple for use in, or development of location based services. So the wi-if networking switch is one way Apple collects location data for wifi hardware addresses to use in their database that allows location information for wifi-connected devices (ie it notes the location of your device, and all within range wifi node hardware addresses to build up the database that gives you your approx, location by the wifi node(s) you are connected to or within range of if you are using a device without a GPS system in it) . Most of the other names give you the clue to what they do.

Ome that might have a measure able impact on battery is frequent locations switch, as it can poll for your location frequently (at least it seems to initially while learning your patterns), and the popular near me. I mainly turn them off as I don't see them offering me a whole lot of benefit (I could not care less about location based adverts, for example) so why have them active?