Can you please explain what Thomas Paine meant by this quote, Government, even in its best state, is but a necessary evil; in its worst...

Paine is basically saying that he is not terribly fond of government, and that, when it is working and functioning as intended, it is still something he considers "evil"--a necessary evil--one that we need to have around so that things can function better.

On the other hand, when the government in NOT working and/or functioning as it is intended, it becomes an INTOLERABLE evil, one that will make the constituents miserable and an evil that will make everyone's lives worse.