It seems the "micro" implies that services are separated by high level business terms, like "payment" or "inventory" with each having their own databases instead of computational terms like "storage", "load balancing" or "preprocessing" etc.

Is this generally correct? How well is this term defined?

If yes, then I'm not surprised this type of design has become a target for frustration. State is smeared across system, which implies a lot of messaging and arbitrary connections between services.

That type of design is useful if you are an application platform (or similar) where you have no say in what the individual entities are, and actually have no idea what they will be.

But if you have the birds-eye view and implement all of it, then why would you do that?