From an article on aish.com
by Rabbi Yisrael Rutman:
But why do we use the word "HaMakom" ― the Omnipresent (literally, "The Place")?
...a person who has lost a loved one often feels that he has been abandoned by God; that there is no God where he is. We say to the mourner, therefore, that HaMakom should comfort him: We pray that he be blessed by a renewed awareness of God's presence, even in the grief-stricken place in which he now finds himself...