Short answers, pulled from the story.
Kleinstaaterei describes a landscape split into hundreds of nearly sovereign small and medium-sized secular and ecclesiastical principalities. The word emerged in the early nineteenth century as a sharp criticism of Germany's political map.
Estimates of the total number of German states at any time during the 18th century vary, ranging from 294 to 348. This extreme fragmentation included territories little larger than a single town or the surrounding grounds of an Imperial abbey.
French Emperor Napoleon Bonaparte forced the Holy Roman Emperor Francis II to dissolve the Empire in 1806. He reduced several hundred states into a relative concentration of a little over two dozen states through secularisation.
Varying systems of weights and measures, different currencies and numerous tariffs impeded trade and investment across the fragmented German lands. The decentralised nature made it difficult for the German economy to live up to its potential until the creation of the German Customs Union in 1834.
Kleinstaaterei largely ended in 1871 with the founding of the German Empire after Prussian Chancellor Otto von Bismarck gradually built a unified German state. Ruling dynasties had resisted nationalist efforts at unification during the Revolutions of 1848.
As of 2010, Kleinstaaterei is most often invoked in matters of educational policy within sixteen different administrations. Critics use the term to describe seeming inefficiency to decide on reforms in political fields that are the responsibility of the states of Germany.