It's technically accurate, and some serious bullshit:
'No taxation without representation. But also, no beer until representation.'
I haven't encountered this in years and years and especially with REALID standardization I assume it's vanishingly rare, but driver's licenses used to vary enormously from state to state and many didn't even have photos. So I assume the logic on requiring in-state government ID would be that a store clerk had no way of knowing whether an out-of-state license was a blatant forgery or not.
I don’t think they meant ‘in’ state, more so ‘issued by a state’ which DC isn’t.
I always thought it meant state as in ‘nation state’ - so a passport would count.
It's usually "government issued photo ID." I have seen (but not for many years) cases where a store wouldn't accept out of state ID for alcohol purchases.
Then you probably haven’t heard of airport TSA agents turning away people with New Mexico license, thinking that New Mexico is in Mexico and not the US.