Composite States are composed within the State Machine diagram by expanding a State element, adding Regions if applicable, and dragging further State elements, related elements and connectors within its boundaries. The internal State elements are then referred to as Sub-states.
(You can also define a State element, as with many other types of element, as a composite element; this then has a hyperlink to a child diagram that can be another State Machine diagram or other type of diagram elsewhere in the model.)
Composite States can be orthogonal, if Regions are created. If a Composite State is orthogonal, its entry denotes that a single Sub-state is concurrently active in all Regions. The hierarchical nesting of Composite States, coupled with Region use, generates a situation of multiple States concurrently active; this situation is referred to as the active State configuration.
OMG UML Specification
The OMG UML specification (UML Superstructure Specification, v2.1.1, p. 478) states:
A composite state either contains one region or is decomposed into two or more orthogonal regions. Each region has a set of mutually exclusive disjoint subvertices and a set of transitions. A given state may only be decomposed in one of these two ways.
Any state enclosed within a region of a composite state is called a substate of that composite state. It is called a direct substate when it is not contained by any other state; otherwise it is referred to as an indirect substate.
Each region of a composite state may have an initial pseudostate and a final state. A transition to the enclosing state represents a transition to the initial pseudostate in each region. A newly-created object takes its topmost default transitions, originating from the topmost initial pseudostates of each region.
A transition to a final state represents the completion of activity in the enclosing region. Completion of activity in all orthogonal regions represents completion of activity by the enclosing state and triggers a completion event on the enclosing state. Completion of the topmost regions of an object corresponds to its termination.