Yes, Pokemon should include real-world locations in their game because it would make the game more engaging and appealing for its users. While Pokemon games are usually based in otherworldly locations, it would be exciting to have some real-world locations which the user can choose. This option would allow users to engage more closely with the game as they can pick a familiar location.
I think that children and Pokemon players would enjoy seeing their own cities or landmarks included in Pokemon games. Not only would it encourage players to play the game, but it would also encourage them to go out exploring. Perhaps if they put a landmark or special places into the game then the players would want to physically go check out those places. I think this is a great idea. This will encourage Pokemon players to go outdoors.
Pokemon is a game, nothing more. I think kids these days already have a hard time distinguishing between fiction and reality. Let Pokemon just be a game, and don't confuse it with real life. Kids need to be able to draw a distinction between what they experience in video games and what kind of behavior is acceptable in life.
Whether or not to include real-world locations in the Pokemon games is a decision that should be left up to the developers. Pokemon is a video game about imaginary characters set in a fantasy universe and therefore has no reason to incorporate reality. Including real-world locations could add a sense of realism and community to the game, but it is so popular already that it's just not necessary.