The nickname for Kentucky is The Bluegrass State, based on the fact that bluegrass is found in many of the lawns and pastures throughout the state (particularly in the northern part of Kentucky - including the metropolitan areas of Lexington and Louisville).

"Bluegrass" is the common name for grass of the genus Poa, which is a favored lawn and pasture grass in the eastern United States from Tennessee northward. Bluegrass is actually green - but in the spring bluegrass produces bluish-purple buds that give a rich blue cast to the grass when seen in large fields. Early pioneers found bluegrass growing on Kentucky's rich limestone soil and traders began asking for the seed of the "blue grass from Kentucky."

Bluegrass Region:

The Bluegrass Region, which extends into southern Ohio, is characterized by underlying fossiliferous limestone, dolostone, and shale of the Ordovician geological age. Hills are generally rolling, and the soil is highly fertile for growing pasture. The Bluegrass Region is famous for its horse farms and of course the Kentucky Derby (the Thoroughbred is the official state horse of Kentucky.

However, the area is becoming increasingly developed with residential and commercial properties, particularly around Lexington. Farms are losing ground to this development and are slowly disappearing. This has led the World Monuments Fund (WMF.org) to include the Bluegrass Region on its global list of 100 most endangered sites.

Bluegrass Music

Bluegrass music is an American grass roots music influenced by Irish, Scottish and English traditional music. Bluegrass was inspired by the music of immigrants from the British Isles (particularly the Scots-Irish immigrants in Appalachia), as well as jazz and blues. Blue Moon of Kentucky is the official state bluegrass song. The bluegrass music genre is associated with the entire state, not just the bluegrass region.

In bluegrass, as in jazz, each instrument takes a turn playing the melody and improvising around it, while the others revert to backing; this is in contrast to old-time music, in which all instruments play the melody together or one instrument carries the lead throughout while the others provide accompaniment. Bluegrass is distinctively acoustic in instrumentation, not using electrical instruments of any kind (the Appalachian dulcimer is the official state musical Instrument of Kentucky).

Source:

Symbols & Traditions: Kentucky Dept. of Tourism
Bluegrass Music: Wikipedia (GNU Free Doc. License)
Bluegrass Region: Wikipedia (GNU Free Doc. License)

Links:

State Nicknames - 50 States