I had set my initial location as India (got shortened to IN) in my profile. A few days ago it turned into Indiana! Funny! I've changed it back now.
Why did this happen?
This is a known issue, and has been discussed on Meta Stack Overflow. From Nick Craver's answer:
We're doing a best-guess match on locations across the network in an effort to get more consistent location formats for all the users, for example mine would be "Winston-Salem, NC", "City, ST", or "Something, Ontario" for Canada, "London, United Kingdom".
To do this we needed to perform a backfill of locations across the network, but we can't do this instantaneously since we're hitting against Yahoo's API to do this (which would more than likely ban us for a massive hit like that).
It's unfortunate but we will get a few false positives in here...we've reduced that as much as possible and checked many of the matches to ensure the correct location's being returned...but some will slip through, and we apologize for that. In the future this is done from your profile, rather than on the server-side, so whatever location you leave in that field after this we'll respect (but still recommend the match we found on the right optionally).
As to why IN got translated to Indiana, IN is the US Postal Service abbreviation for the state of Indiana.