A sequential circuit remembers. Its output depends on the inputs you apply now and on something it has stored from earlier. That stored information is its state.
Compare a combinational circuit. There, the output is a fixed function of the present inputs: apply the same inputs and you always get the same output. A sequential circuit can give two different outputs for the same inputs, because its state may have changed in between.
Why you need one:
- A counter has to know the last count to produce the next one.
- A vending machine has to know how much money is already in.
- A CPU has to keep its numbers between instructions.
How it works: every sequential circuit contains a feedback loop, an output wired back to an input so a value keeps itself in place. In practice the loops are packaged as latches and flip-flops. Most sequential circuits are synchronous: a shared clock decides when the stored values may change, so the whole circuit steps from one state to the next at each rising edge.
A useful test: could the same inputs ever give different outputs? If yes, the circuit is sequential.