A location is either a library, tavern, or temple.
A location is designated by setting up a meeting area and then going into the 'Assign location' submenu from the zone view. Once a location is set, the Locations screen will contain information on that location, such as the restrictions and the items contained. You can restrict access from visitors or retire the location. A location can have citizens with the appropriate occupation, which you set. You can also set the max number of items of a certain type. An occupation does not stop citizens from doing other jobs.
Some rooms can be assigned to locations to aid in the function of that location (for example, bedrooms for taverns).
Locations that require a dance floor will measure the amount of space available from a continuous uninterrupted rectangle. It will not consider free space between built furniture such as instruments, chairs, and tables, no matter how much there is. It's therefore optimal to build furniture in the tavern and temple such that they are all along the edges of the room or arranged in a sort of block.
Designating a location exposed to outside tiles can be an effective way to prevent cave adaptation.