In this article i explain how to filter the drop down list based on State and City.
Create State and City list with lookup and create smartobject for this lists.
I have created view with State & City Dropdown
Select the state dropdown -> click on type under DataSource in Properties
Configure Data Source with State Smart Object and Display value-> Click OK
Now goto "Rules" -> When DDLState is changed rule will generate automatically, Edit the rule.
Click on Configure.
No need to map anything, it will automatically map the Filter value.
Hope it's help..:)