"does this mean FSA and Cafe 125 are included in my State Wages and therefore don't need to be adjusted in my state return? " - correct
"And does any of this have to do with Box 12 codes C, D, AA, and DD?" - some of the Section 125/Cafeteria plans are shown in box 12 (like HSA - W). But you don't have to worry about it.
".is this section I'm inquiring about only for people who worked in two states?" - no. There must be an astonishing number of people who live in one state but work in the other, and they are puzzled by what they see - hence the questions. However, I think part of the reason there are so many two state questions is that it is easy to see the changes in the NJ income by comparing it to NY...if you have only NJ income, then people are more likely to not realize that anything happened, like adding back Cafeteria/sec 125 plans amounts.
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