Setup states

Go to the "CRM settings"

Click on "More CRM Settings"

Go to "States and Status"

From here you can change the states list and for each state, you can define its own status list & default status.

Status list for a state

Status list for a state means that, if a lead is in state "A" - You can only have the status options that are defined for the state "A".

Default status for a state

When a lead is shifted to state "A" from some different state. The status will also get changed to whatever you select in "Default status" of that state.

Once you're done with the changes, Click on Save.