That's a pretty huge question and an enormous source of debate in the US, but on a basic level the U.S. Constitution gives very few requirements for exactly what the federal government does (namely, make, interpret, and enforce laws) but there are oodles of federal laws that decide what the federal government will do. States have their own constitutions that direct what they're responsible for, as well as all the state laws. There's occasionally conflict, like in California when the state allows medicinal marijuana but federal agents raid pot dispensaries for violating federal law.
So, every state is different in what it does for its citizens -- there are a dozen and a half states that control the sale of liquor, while the rest let it flow freely. What decides this is almost entirely written in law, some in constitutions.