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What are ACPI Sleep States and what do they do? 

Advanced Configuration and Power Interface (ACPI) sleep states define the various possible power states for a PC. They are part of "Operating System Directed Power Management."

Sleep states
Sleep State	CPU Status	Targeted System Power	Front LED Status
S0 Working State	C0 - Working	Full Power >60 Watts	On
S1- CPU Stopped	C1 - Stop Grant	Five Watts to Thirty Watts of Power	Blink - 1 Hz
S3 - Suspend to RAM (context saved to RAM)	No Power	Power less than Five Watts	Blink - 1 Hz
S4 - Suspend to Disk (Context saved to HDD)	No Power	Power less than Five Watts	Off
S5 - Context NOT saved - cold boot required	No Power	Power less than Five Watts	Off
Unplugged	No power to system	No Power	Off

What is the benefit of the Standby and Hibernate sleep mode?

S3/4 hardware plus an S3/4 enabled operating system (Windows XP) allows for your system to be 'Ready Now!' providing 'Instant On' performance for users. The S3/4 allows the system to be "on" all of the time, especially with Windows XP Professional.

When a user does not use the system for a specific period of time, the system goes to "sleep".

When the user is ready to use the system again, the system "wakes up" in a few seconds.

When the system wakes up, it is at the exact point it was at when the system went to sleep. (for example: in the middle of a Word document)

The S3/4 feature saves power and increases user efficiency. (users do not have to wait for the system to shut down or re-boot).

What kind of cost savings might I see?

Depending on usage model, your savings can be significant, up to $100 in yearly energy savings