The location block you included does not list a modifier. Therefore, it is just matching a location. It does match a specified pattern of /
.
If no modifiers are present, the location is interpreted as a prefix match. This means that the location given will be matched against the beginning of the request URI to determine a match.
Via Digital Ocean: Understanding Nginx Server and Location Block Selection Algorithms
# --------------------------------------------------------------------------------------------------------------------------------------------
# Search-Order Modifier Description Match-Type Stops-search-on-match
# --------------------------------------------------------------------------------------------------------------------------------------------
# 1st = The URI must match the specified pattern exactly Simple-string Yes
# 2nd ^~ The URI must begin with the specified pattern Simple-string Yes
# 3rd (None) The URI must begin with the specified pattern Simple-string No
# 4th ~ The URI must be a case-sensitive match to the specified Rx Perl-Compatible-Rx Yes (first match)
# 4th ~* The URI must be a case-insensitive match to the specified Rx Perl-Compatible-Rx Yes (first match)
# N/A @ Defines a named location block. Simple-string Yes
# --------------------------------------------------------------------------------------------------------------------------------------------
So, in the context of a configuration file /
would correspond to wherever you set the document root.