To make the concept clearer, here is an example:

Rahul stays in Kerala and acquires a certain rank in JEE Main. Since, Rahul has a domicile of Kerala, he can apply to a Kerala college through the home state quota.

Now, in case, he got a rank around 1000 and NIT Calicut, in the 1st round, is offering a computer science seat at an All India rank of 900. Since Rahul has a home state quota, same seat would be offered to him at a rank of 1000 or even at 2000 also. Thus, Rahul is left with two options- First, to apply through the All India route or second, to apply via home state quota route. Here the choice completely depends on Rahul.

State of Eligibility: It is the state from where the candidate has passed the qualifying examination