The German Empire was created from four kingdoms, six grand duchies, five duchies (six before 1876), seven principalities, three free Hanseatic cities, and one imperial territory, a total of 26 individual provinces, or Länder. At the formation of Germany in 1871, the ruling families or governments of each of these states acknowledged Wilhelm I, King of Prussia, as Emperor of Germany. Constitutionally, the Emperor of Germany would also be the King of Prussia, it would be impossible to abdicate from either of these offices individually. The other provinces were all allowed to keep their Kings, Grand Dukes and so forth, and this arrangement was kept in place up until the end of the First World War, where the monarchs were ousted from power, although they still retained significant political influence. Some of the royal lines still have descendants alive today, who claim the titles of their forebears.

With regards to Government, Germany functioned in much the same way as the US does. Each of the Länder, or states, retained control over education, healthcare, policing and so forth. The Imperial Government however had control over diplomacy, military matters and international trade. The Länder each sent representatives to the upper house of the German Parliament, the Bundesrat, allotted roughly according to population.

However, the system wasn't perfect. Prussia remained by far the richest and most populous state and so dominated political affairs. Significantly, they were the only state to have enough members of the Bundesrat to veto legislation single-handedly. Otherwise two or more states would have to work together to reach enough votes for a veto. Additionally, there was very little to foster a sense of 'German' national identity in the face of local identity. Linguistically there was great difference between different regional dialects, and the Catholic south, especially Bavaria, felt alienated from the Protestant north. This wasn't helped by repressive anti-Catholic measures put in place by Bismarck up until about 1880. The federal government also couldn't levy direct taxes (such as income tax) and so had to either rely on income from indirect taxes such as trade tariffs, or be dependent on the state governments for money.

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