I actually answered a question about the modern Italian state's relationship with the Papacy here a few months ago.

In short, the Papal States were the polity directly (more or less) ruled by the Pope in his capacity as Ruler of Rome. When Rome and the Papal States were annexed by the Kingdom of Italy in the Italian wars of unification, it opened up a whole bunch of cans of worms. The Pope, understandably upset, excommunicated the House of Savoy, meaning that in much of Italy (especially in the south) lack of cooperation from the clergy was one of many obstacles to establishing an effectively run state. Although there were a number of complex factors at work, the Papacy's unwillingness to recognize the new Italy certainly contributed to a small but protracted insurgency in Southern Italy. Further, a whole contingent of the Roman Nobility followed the Pope in his refusal to acknowledge the Italian State; they would come to be called, "The Black Nobility." Until the Lateran Pacts of 1929 establishing the "Vatican City," the continued Papal refusal to recognize the Italian state would be a thorn in the side of the Kingdom of Italy and a small but not insignificant contributor to instability and delegitimization of unified rule in the Peninsula.