I had never heard of it before last year either. I got a bunch of geneology material and 2 ancestors had their place of birth listed as the State of Franklin.
Bet you did a double take at first! Same thing happened to me when I was doing some legal research in Kentucky and ran across "Beckham County". We have 120 counties in Kentucky, none of them named Beckham. Turns out the county existed for something like 60 days in the early 1900's. The counties it was carved from were not happy about it though, and found a loophole that caused it to revert to the way it was prior to Beckham County existing. It did last long enough to have at least one court case published though!