Before reading this help file you may want to check this video. It explains theme functionality and may be easier to understand. Watch Video on Youtube

In the theme, you will have 3 options to set the Location option

How to manage the listing location with a dropdown selector

First, you will need to make the necessary settings in Theme Options -> Search -> Advanced Search settings

These options will apply in the search form for the location field.

You will also need to set the options for the submission form.

You will be able to set the City/Area to be a dropdown or a free input field.

The option for the submission form can found in Theme Options -> Payments & Submit -> Listing Submit Page.

In the submission form, if the Show cities and areas as drop-downs? is set to Yes, for City/Area, the owner will need to select the values from drop-downs.

The drop-downs are independent. 

The values from drop-downs will be added by the admin. Click here to read the help to manage Listing categories.

If the Show cities and areas as drop-downs? is set to No, for City/Area, the owner will have an input field for City and Area.

In the search form, you will have the dropdown for the Location field that will contain City,  Area, State, and Country.