Vatican City is a city-state that came into existence in 1929. It is distinct from the Holy See, which dates back to early Christianity and is the main episcopal see of 1.147 billion Latin and Eastern Catholic adherents around the globe. Ordinances of Vatican City are published in Italian; official documents of the Holy See are issued mainly in Latin. The two entities even have distinct passports: the Holy See, not being a country, only issues diplomatic and service passports; the state of Vatican City issues normal passports. In both cases the passports issued are very few.
The Lateran Treaty in 1929, which brought the city-state into existence, spoke of it as a new creation (Preamble and Article III), not as a vestige of the much larger Papal States (756-1870) that had previously encompassed central Italy. Most of this territory was absorbed into the Kingdom of Italy in 1860, and the final portion, namely the city of Rome with a small area close to it, ten years later, in 1870.
Vatican City is an ecclesiastical or sacerdotal-monarchical state, ruled by the bishop of Rome—the Pope. The highest state functionaries are all Catholic clergymen of various nationalities. It is the sovereign territory of the Holy See (Sancta Sedes) and the location of the Pope's residence, referred to as the Apostolic Palace.
The Popes have resided in the area that in 1929 became Vatican City since the return from Avignon in 1377. Previously, they resided in the Lateran Palace on the Caelian Hill on the opposite side of Rome, which site Constantine gave to Pope Miltiades in 313. The signing of the agreements that established the new state took place in the latter building, giving rise to the name of Lateran Pacts, by which they are known.