The three stars on the Tennessee state flag represent the three Grand Divisions of the state, East Tennessee, Middle Tennessee, and West Tennessee. The blue circle around the stars represents the unity of the "Grand Divisions" of the state. The blue bar at the edge of the flag was just a design consideration.
LeRoyu Reeves, who designed the Tennessee state flag, described the design as:
“The three stars are of purple white, representing the three grand division of the state. They are bound together by the endless circle of the blue field, the symbol being bound together in one – an indissoluble trinity. The large field is crimson. The final blue bar relieves the sameness of the crimson field and prevents the flag from showing too much crimson when hanging limp. The white edgings contrast more strongly the other colors”.