Why is tornado alley located where it is located?

The are a combination of factors. Tornado Alley is located in the central U.S. as that is where warm, moist air from the Gulf of Mexico meets with cool air from Canada and dry air from the Rocky Mountains. The warm, moist air acts a fuel for thunderstorms while the incoming cool, or dry air mass, sometimes both, act as a trigger for their development. Other conditions such as an inversion cap and wind shear (see related question for details) give these storms the potential to produce tornadoes.
These converging factors create a region ideal for tornado formation.