Sequential circuit: What does state mean exactly?
The number of states in a sequential system is not determined by the number of inputs, and it is not determined by the rows of a combinational truth table. Just talking about the "state" of the inputs is misleading (although I do it sometimes).

The number of possible states is determined only by the number of memory bits in the system. The maximum number of states is equal to \$2^N\$ if there are \$N\$ bits of memory.

The state of system can change how it responds to its inputs. The behavior (outputs) of the system can be different for each of the possible states even when the inputs are the same.

So, if you have 2 memory bits (2 flip-flops) then you have 4 possible states corresponding to the four combinations of '1' and '0' in those two flip-flops. The outputs can have up to 4 different values for exactly the same input based on the current state.

You might have just one input (plus a clock) for your 4-state machine, or you could have a hundred inputs. You might have just one output or many outputs. Nevertheless, if you have two flip-flops you have four possible states.