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It's a description that is specific to versions of the Beatles "butcher cover" record:

Copies that have never had the white cover pasted onto them, known as "first state" covers, are very rare and command the highest prices. Copies with the pasted-on cover intact above the butcher image are known as "second state" or "pasteovers"; today, pasteover covers that have remained unpeeled are also becoming increasingly rare and valuable. Covers that have had the Trunk cover steamed or peeled off to reveal the underlying butcher image are known as "third state" covers; these are now the most common (and least valuable, although their value varies depending on how well the cover is removed) as people continue to peel second state covers to reveal the butcher image underneath. The most valuable and highly prized First and Second State Butcher Covers are those that were never opened and remain still sealed in their original shrink wrap. In December 2005 a "first state" copy of the album was sold for $10,500.[9]

http://en.wikipedia.org/wiki/Butcher_Cover

http://www.eskimo.com/~bpentium/butcher.html

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