Magento Order status & state is very confusing to many. I will try to simplify it for you here.
Every order goes through a set of steps - like a workflow. The position of the order in the workflow is called the Order State. Order state is used internally only. The various order states are:
When an order is in a particular Order State, it can have various Order Statuses. By default, Magento has only one order status per order state. But, you can easily create a new Order Status and assign it to a Order State by following these steps:
Login as Admin > System > Order Statuses
Enter the status code (used internally), enter the status label (used for display), select the stores for which this order status can be used
When you list the orders in the admin (Sales > Orders) you will see the order status listed. Order status is what is displayed everywhere and not the order state.
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