A latent state is a compressed, often unobservable, representation of an environment's true condition, inferred from raw sensory data. It serves as an agent's internal belief about the world, distilling high-dimensional observations (like pixels or sensor readings) into a lower-dimensional vector that captures the essential, predictive factors. This representation is central to model-based reinforcement learning and planning within Partially Observable Markov Decision Processes (POMDPs), where the true state is hidden.
