Poor material state means that much of the equipment and fittings on the ship are not in a fit condition for operational use. This could include electric motors, pumps, wiring, hatches, or even small things like bulkhead fittings, paint and decking, and the like. It might mean the ship has experienced a higher-than-expected level of corrosion in the hull and superstructure.
Neglected maintenance, missing equipment, or any of hundreds of other issues contribute to a "poor material state." Having a crew and command that neglect maintenance or simply can't do it because of a lack of parts, materials, or even in the worst case, concern for doing it, all contribute too.