SUMMARY
The "Locations" option in System Settings appears to set the locations of well-known directories under the XDG user dirs pseudo-specification. On many systems, these directories will be automatically created and tools that provide shortcuts to these directories are generally expected to respect the location specified in the user-dirs config file.

The KDE concept of "Places" is somewhat orthogonal, but by default contains most of these same directories that users expect. For instance, the "Places" shown in Dolphin include "Desktop", "Documents", "Downloads", "Music", "Pictures", etc... which are all well-known and managed under the XDG standard.

Unfortunately, the "Places" don't pick up changes made to XDG user dir locations, either through the System Settings or via other means. This violates user expectations, and in fact I don't think it will be clear to most users what the "Location" settings even do.

STEPS TO REPRODUCE
1. Move one of the XDG user dirs (I picked ~/Desktop) to a new location (~/desktop).
2. Change the location specified for the directory in System Settings > System > Session > Locations.
3. Attempt to open the corresponding "Place" via Dolphin (or krunner, the Okular file picker, etc).

OBSERVED RESULT
An error appears that says "The file or folder ... does not exist")

EXPECTED RESULT
The new location opens in Dolphin.

Default "places" that are mapped to well-known user directories should be updated by KDE when the corresponding user directories are updated by System Settings or other XDG aware tools.

SOFTWARE/OS VERSIONS
Operating System: Arch Linux 
KDE Plasma Version: 5.90.0
KDE Frameworks Version: 5.246.0
Qt Version: 6.6.1
Kernel Version: 6.6.4-arch1-1 (64-bit)
Graphics Platform: Wayland

ADDITIONAL INFORMATION

This works with no further effort in the GTK file picker.