Microstates within the NSC world were sovereign states with very little land area. Moreover, in the Nation Song Contest they were nations of only partial membership in the NBU, due to restrictions within the contest relating to how many countries could participate. They could take part in the contest by passing an extra qualifier round to fill the 28 available spots of a semifinal when one or more full nations weren't taking part.
Microstates could be upgraded to full nations overtime as old nations became defunct. Several of today's existing nations started their life as microstates.
The reformation between NSC 17 and 18 completely abolished the political existance of microstates and simultaneously upgraded all of the remaining ones to full nations. Today, nations awaiting NBU entry are part of the waiting list. However, nations on the waiting list have even less influence than what microstates had, and are not considered sovereign nations at all.