You do not need to add any locations at all, your users will do that as they submit listings; your database will grow automatically.
The city/town and region and country are automatically filled in when a user adds an address in the address field, or drags the marker to the right spot.
A user does not need to choose from the dropdown box, they can type their town in themselves. The system will look for the town in your database first and if the town is not found, it will look through the Google API database. Try it.
To restrict to 8 states only:
1. Add at least one town per state in GD > Multilocation > Add/edit Location
2. Then go to GD > Multilocation > Location settings
3. Enable selected countries > select the country
4. Enable selected regions > select the 8 states
Your users will now only be able to add listings in your 8 states.
Let me know how you’re getting on.