<topics>
<topic>
<name>Introduction to LotusScript for Lotus Notes and Domino</name>
<start>0800</start>
<end>1000</end>
<location>SW 1-4</location>
</topic>

<xsl:variable name="unique-rooms" select="//topics/topic/location[not(. = preceding::location)]" />

<xsl:for-each select="$unique-rooms">

<xsl:if test=". = ../location">

I don't understand why the xsl:if is always true if I am comparing 2 different things,

You compare two equal things. The $unique-rooms is a set of all location
elements which are pairwise unequal. The context node for the test
expression is such an location element. The parent of this node has exactly
one location element as child, the element which is also the context node.
Therefore both . and ../location resolve to the same node, no surprise that
the comparision of their contents is always true.