Location of fancy castles (5)
I believe the answer is:
spain
'location of fancy castles' is the definition.
'Spain' can be an answer for 'location' (Spain is an example). I'm not certain of the 'of fancy castles' bit.
'location of fancy' is the wordplay.
'location' becomes 'spa' (spa is a kind of location).
'of fancy' becomes 'in' (I can't justify this - if you can you should give a lot more credence to this answer).
'spa'+'in'='SPAIN'
Can you help me to learn more?
(Other definitions for spain that I've seen before include "Crazy pains?" , "holiday country" , "part of Europe" , "Kingdom" , "Take pains to go there" .)