The first "that" phrase includes all of words that follow it. This is a very wordy sentence with a lot of modifiers. I like to remove the modifiers and see if that helps.
This suggests that our locations are of such quality that features [with higher discriminative power than is normally found in Bag-of-Words] are now required.
The bracketed phrase is all one long modifier that describes what kind of features are now required. The phrase states that normally a certain descriminative power is found in Bag-of-Words. But, the "features now required" need a higher power.
This suggests that our locations are of such quality that features are now required.
Taking out the long modifier phrase makes this sentence much more readable. It is now quite clear that features is the subject of the final "are"
It employs a structure sort of similar to:
[noun] is so [adj] that [conclusion/result].
However this construction uses of such instead of so because "quality" is an attribute that can be high/low or good/bad. It shares this with "height", "weight", etc. "of such" was chosen because it is more formal than the "so [adj]" construction. It also can convey a sense of exactness instead of simply extremeness:
This backpack is so heavy, that I injured my back carrying it.
This brick is of such weight, that it perfectly balances the groceries in my other hand.
I typically would put a comma before the "that" but I don't know if that is explicitly proper.
So to generalize, this structure is:
[noun] is of such [attribute] that [conclusion/result].