Is It Possible to Know the Location of the Caller?

You can only do a lookup for a house phone. A mobile phone you don't know where they are most likely unless you have a subopena.

TrueCaller ($6.99) does area code lookups plus public directory lookups. If the number is in a public directory it'll tell you the person's name & address (if available) otherwise it defaults to showing the location based on area code. I've never used it and it does not have very good reviews in the app market but it seems like a lot of those are from people with unrealistic expectations and people who don't want to pay for apps.

Yes. I have not tried the WorldCallPlaceAndTime App but it looks like what you want. Below you can see the summary and screenshot from appbrain.

EDIT: Based on the comments on appbrain, this app just determines the caller's location based on the phone number's area code. If you want to know the phone's physical location, you'll need to use something like Google Latitude, which does not give you the caller's location during the call (yet).

This program shows a small CUSTOMIZABLE info window during incoming/outgoing call: country, region, city (or mobile operator) and LOCAL TIME in that place (worldwide)!

2.0: colors option for donators, bugfixes

tag: call location,calllocation,who's calling,wer ruft an,caller id,who called