what is status code "0xC8" in an AVR TWI MCU I2C
The 0xC8 state is relevant for the Slave Transmitter mode of AVR only.

Last byte means last from the point of view from the AVR as a Slave Transmitter, not from the other MCU as Master Receiver, which may want to receive in more or less bytes than the AVR expects to be transmitted out

Depending on what kind of data transaction messages are exchanged via TWI, and the AVR may or may not know the message length how many bytes to transfer. For example, an I2C EEPROM with size of 256 bytes, or a GPIO expander, you can always read one or 10000 bytes continuously out of it and it does not care how much you read. 

If the AVR does know the message size, it may in some cases be important for the AVR to know that the Master Receiver tries to read an unequal amount of bytes. The Master may transfer only smaller amount of bytes, or larger amount of bytes. 

When AVR writes the last byte it knows to be transmitted over TWI, the TWEA bit is set accordingly to what kind of response to expect from master, ACK or NAK.

If the Master responds NAK to the last known byte of AVR, then AVR knows that Master does not transfer more bytes and everything is good. TWSR status will be 0xC0 to indicate transmission of last byte AVR knows of went as expected.

But if the Master responds ACK to the last known byte of AVR, then AVR knows that the Master wants to transfer more bytes but AVR has no more to send, so the status code will be 0xC8 to indicate this. The TWI hardware knows that last byte is already transmitted so it just keeps the SDA released and the master just receives additional 0xFF bytes, and the TWI hardware does not emit interrupt requests to load more data. So the TWI hardware helps the firmware to ignore further data byte requests.

Quote from the datasheet, which basically explains the same in more compressed form:


  State 0xC8 is entered if the Master demands additional data bytes (by transmitting ACK), even though the Slave has transmitted the last byte (TWEA zero and expecting NACK from the Master)