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That, right there, is Paul's philosophy in a nut shell.
The phrase became part of American politics in the lead-up to the US Civil War, when it meant a state's (presumed) right to enslave people solely on the basis of the color of their skin. After the Civil War, it came to mean a state's right to enforce racial segregation and Jim Crow laws. So for more than a hundred and fifty years, "states' rights" has been strongly tied to racism.
Move forward to the late 1970s and early 80s. As the religious right begin to grow in power, the phrase "states' rights" was adopted by America's Talibangelicals to express opposition to Roe v. Wade and federal court rulings prohibiting the use of the public education system to indoctrinate children into religious beliefs. The argument went that, since the Constitution does not mention abortion or public education, neither the Congress nor the Supreme Court have any authority to mandate how the states should handle these situations; if a state wants to make abortion a capital offense or require that all children in state schools be taught Christian doctrine, then it was a state's right to do so.
Today, "states' rights" has gained added meaning with regards to gay human rights. If a state wishes to make "sodomy" a felony offense, the states' rights doctrine holds that they can. If a state wants to prohibit same-sex marriage, refuse to recognize same-sex marriages entered into in other states or even make it a felony for state residents to leave the state in order to enter into a same-sex marriage, they can. (The felony to leave the state bit is not just rhetoric: Virginia had exactly such a law with regards to interracial marriage. A challenge to that law led to the decision in Loving v. Virginia which struck down all anti-miscegenation laws in the country, a result decried by states' rightists to this day.)
Yes, there is something attractive to the movement for states' rights. If a state wants to decriminalize the use of pot, the doctrine of states' rights says they should be allowed to do so. On the other hand, the doctrine also holds that if a state wants to make drug posession a capital offense, they have that right too. Now look around the country: How many states would jump at the chance to declare that abortion was first degree murder? How many states would immediately make "sodomy" a felony? How many states would deem a thorough knowledge of Christian doctrine more important than science and mathematics?
Then consider that Paul has declared repeatedly that abortion is an "abomination" and has all but admitted that his support of states' rights is part-and-parcel with his desire to get as many states as possible to outlaw abortion. He has expressed equally strong opposition to equal marriage and support of sectarian religious education in public schools.
Also, Paul's opposition to the occupation of Iraq and Afghanistan take on a whole new mean when viewed through his vociferous opposition to the United Nations and its goal of international communication and cooperation.
In short, he is a sugar-coated sham. That is why, as you point out, he is the darling of the David Duke and Aryan Nations wing of the country.
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