I'm learning about reducing DFA's using the Pair Table Method (Systematic Reduction Method).Here is the DFA we are looking to reduce.
The first step is to lay out the DFA in a table:
                                    0           1
             q0                  {q0, q3}      {q1}
             q1                    {q2}        {q2}
             q2                  EmptySet      {q2}
          {q0, q1}             {q0, q1, q3}    {q1, q2}
          {q1, q2}                 {q2}        {q2} 
        {q0, q1, q2}           {q0, q1, q2}    {q1, q2} 
We don't need to include the empty set state, I think.
Now here is where I'm confused, I need to go through the list of states and mark them based on something. I'm not sure how to proceed.
First of all, the table you have is not a match with the DFA.
The pair table method uses the classes of equivalency. First we partition the states in two: final and non-final states. Initially every final state is distinguishable from any non-final state. So you should create a table like below and mark (q0,q1) and (q1,q2) as q1 is final but q0 and q2 are non-final states.
+----+
| q0 |
+----+----+
| q1 |  x |
+----+----+----+
| q2 |    |  x |
+----+----+----+----+
     | q0 | q1 | q2 |
     +----+----+----+
Then iteratively, you continue marking using the following rule and stop when in an iteration nothing is changed:
Mark (q_i,q_j) if for some alphabet symbol a,  is marked. Int above table,
 is marked. Int above table,  and
 and  . As
. As (q1,q2) is marked, we should mark (q0,q2) as well. Note that we only have half of the table. Hence, (q0,q2)=(q2,q0).
+----+
| q0 |
+----+----+
| q1 |  x |
+----+----+----+
| q2 |  x |  x |
+----+----+----+----+
     | q0 | q1 | q2 |
     +----+----+----+
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