Does the person "holding" Power of Attorney, have to reside in the state that the Power of Attorney is being executed in?

Not at all.  However, the POA would be interpreted under the laws of the place where it was executed, not the home of the person named as attorney-in-fact, unless the document itself said otherwise.

Choice of law questions can be important, because the law is not identical from one state to another.  Sometimes, the courts of different states interpret identically worded statutes differently.  Sometimes, those differences mean a 180-degree difference in the result, on identical facts, in two different states.