The independent state of Vatican City was established in 1929 after many years of dispute: for centuries (starting as far back as the year 756) the Pope had ruled large tracts of land, mostly located in central Italy. These Papal States reached their greatest expanse in the 1200s, covering most of the modern Italian regions of Romagna, Marche, Umbria and Lazio.
The Papal States declined in the 17th and 18th Century and were annexed by Napoleon in 1809. The Popes used to have their own flags; around 1195 there seems to have been a red flag with a white cross and it is attested that the keys of Saint Peter (supposedly the keys to Paradise) already had made their appearance in 1204. The symbolism was clear: as the Popes were the direct descendants to St. Peter's office, they held the keys to the Kingdom of Heaven.
The Papal States used a vertical red and yellow flag until the year 1808; the city of Rome still uses those colours in its city flag and arms. When Napoleon, in his conquest of Italy, amalgamated the pontifical army into his own, Pope Pius VII felt that new colours were needed and on 16 March 1808 a flag in yellow and white, derived from the silver and gold colours of the keys of St. Peter, was introduced. This flag was in use until 1870, when the Papal States, now reduced to Latium, the immediate neighbourhood of Rome, were conquered by the Italian army and ceased to exist.
In 1929 the state was revived as Vatican City and its flag was resurrected, with on the white stripe the emblem: the papal tiara, a triple crown, signifying the three types of temporal power - legislative, executive and judicial - vested in the Pope, over the crossed keys to the Kingdom of Heaven, bestowed by Christ on St. Peter.
The Holy See refers to the episcopal jurisdiction of the Catholic Church in Rome, whose bishop is the Pope, the worldwide leader of the church. It is often referred to as "the Vatican", but it is not the same entity as the Vatican City State, which came into existence only in 1929; the Holy See, the episcopal see of Rome, dates back to early Christian times. Its arms is the Papal emblem on a red shield; the keys of Saint Peter are reversed as compared to those on the flag of Vatican City.