Short answers, pulled from the story.
Kleinstaaterei is a pejorative German term coined in the early nineteenth century to denote the extreme territorial fragmentation of Germany, particularly under the Holy Roman Empire and later the German Confederation. The word describes a political condition in which the German-speaking lands were divided into hundreds of small, nearly sovereign states.
Estimates of the total number of German states during the eighteenth century range from 294 to 348 or more. Some of these states were little larger than a single town or the grounds surrounding a monastery.
Kleinstaaterei largely ended in 1871 with the founding of the German Empire under Prussian Chancellor Otto von Bismarck. Some fragmented internal boundaries persisted until the modern states of Germany were established in the Federal Republic after World War II.
Napoleon forced Holy Roman Emperor Francis II to dissolve the Holy Roman Empire in 1806. He then consolidated several hundred German states into just over two dozen in the Confederation of the Rhine, eliminating prince-bishop territories and merging enclaves. After Napoleon's defeat, the Congress of Vienna in 1814-15 restored some dynasties, resulting in roughly 40 states rather than the pre-Napoleonic hundreds.
Kleinstaaterei suppressed economic growth by imposing varying weights and measures, different currencies, and numerous tariffs that impeded trade and investment across state borders. The German Customs Union in 1834 began lifting some of these barriers. The rapid pace of Germany's economic expansion after unification in 1871 was widely seen as evidence of how much the fragmentation had held back development.
Goethe wrote that cities like Frankfurt, Bremen, Hamburg, and Lübeck were large and brilliant, and that their impact on Germany's prosperity was incalculable. He expressed doubt that these cities would remain what they were if they lost their independence and became provincial cities inside one great German Empire.
As of 2010, Kleinstaaterei is used figuratively in German media to criticize the federal system, particularly when the division of responsibilities among sixteen state administrations produces inefficiency. Education policy is the area where the term is most often invoked, especially regarding the difficulties faced by children who move between states with different school systems.