My question in NO WAY affects my BB. I am just curious.
How are teams selected for the State Cup?
I ask because I see that the 8th place and 10th place teams from D1 are not playing, but the 11th place D1 team and the 5th place D2 team are playing.

I think you have this tournament confused with Dallas Cup.
Here is how they are selected, you go pay your money and register.

http://www.gotsport.com/events/schedule.aspx?EventID=8852&Sex=Boys&Age=11

It says North Texas State Cup. They are playing this weekend.
I just figured they would have some criteria of who they would accept. Since they accepted a Div2 team, I must be wrong.

You pay, you play!

For U11-U13, despite all the hoo-ha, it's basically just another tournament. Any USYSA sanctioned team can enter. The winner gets to call itself the "State Champion", for whatever that may be worth. (At least, it's worth a lot of points on gotsoccer.com rankings.)

It's expensive, relatively speaking; and it's single elimination, so you may only get 2 games depending on brackets. Lots of teams have issues entering a $600 tourney to play only two games. Sometimes the top teams don't even bother with it.

For U14 and up, the champion team continues in regional/national USYSA play, so the tournament takes on more importance if that is what your team wants to do. But the same entrance criteria apply to the U14s as well - anyone can enter.

Thank you for the explanation, OntheSurface.