A hierarchical custom taxonomy works is the same exact way as would the build-in taxonomy category. On the other hand, non hierarchical taxonomies would work exactly like the build-in taxonomy post_tag
You have to add terms to your taxonomy in the same way as you would add “categories” in the category screen back end.
The template taxonomy-locations.php would be used if any term that belongs to the taxonomy locations are selected or are being viewed.
You have to remember, just like the built-in taxonomy category, you cannot access the taxonomy name directly, this will immediately lead to a 404 been showed as there are no existing index pages for taxonomies