I believe in the case of Kerala, the meaning is quite literal. According to mythology, Kerala was formed or rather 'taken from the sea' by Parasuram, the avatar of the god Vishnu and hence referred to as God's own country. At least this is what I'm given to understand.
See the section on mythology in Wikipedia, Kerala
P.S. I tried to add this as a comment rather than an answer, but I don't have the creds yet.
