That is, what knowledge needs to be represented in a state description to describe the current state or situation of the world?

By making this decision, the knowledge engineer decides what features of the world are needed. This keeps the system from considering irrelevant aspects of the environment.

The size of a problem is usually described in terms of the number of states that are possible. For example, in Tic-Tac-Toe there are about 3⁹ states. In Checkers there are about 10⁴⁰ states. Rubik's Cube has about 10¹⁹ states. Chess has about 10¹²⁰ states in a typical game.

So what is the size of the state space for stock investing? Medical diagnosis? The Mars Rover?