Order status?

Hey guys,
I don't understand the order status system. I'm integrating with paypal, and one of the fields asks for order status - I don't know what that means? And it seems to pop up in places that doesn't make sense as to 'ordering' status.

Can someone explain this to me?

what order status do you want the order set to once payment has been confirmed?

pending
complete
canceled
refunded

etc..