Since it is the title for a piece of art, it is open to a number of interpretations, and indeed might be deliberately ambiguous. Firstly, it is a play on words. The gallery where this was displayed is the Tate Britain. Secondly, it may well be referring to Britain as a country, or perhaps as an extra 'state' of the USA (since this artwork is criticising the UK's involvement in the US-led war). Thirdly, it could also mean 'situation/condition/status' as in 'Q: What state was the dog in when you found him? A: He was lying on floor not moving'. In which case, the artist might be encouraging viewers to think critically about the current state of British society/behaviour. In the end though, you'd either have to ask the artist, or come to your own interpretation.