The State of the City of the Vatican is a 44 hectare sovereign city-state within Rome, the capital of Italy. Its population is just over 800, and the head of state is the pope.
Most of the Papal States had been taken over and united under the Kingdom of Italy by 1860. In September 1870, Italy declared war on what was left of the Papal States and marched on Rome, capturing it 10 days later.
The pope at the time -- Pius IX -- really hoped the traditional catholic powers would come to his aid, but it was not to be and he was a prisoner in his posh palace. In the 1920s, Pius XI renounced the bulk of the Papal States, and the Lateran Treaty was signed, creating the Vatican City State.
Vatican City on Wikipedia