You can register custom taxonomy like so:
<?php
// Register custom taxonomy for locations
function mamaduka_register_taxonomy_location() {
register_taxonomy( 'location', array( 'post' ), array(
'hierarchical' => true,
'label' => 'Locations',
'public' => true,
));
}
add_action( 'init', 'mamaduka_register_taxonomy_location' );
?>
for more information about custom taxonomy see Codex: http://codex.wordpress.org/Function_Reference/register_taxonomy