Napoleon sought to bring Spain under the control of the French Empire, but not to absorb it entirely into France as one unified state.

The relationship between Revolutionary France and Spain changed quite dramatically from when the revolution broke out in France in 1789 to when Napoleon took power in 1799. Spain joined with other European powers in opposing France after the execution of Louis XVI, but France had defeated them by 1794. By 1801, Spain had become a French ally, which is when Napoleon invaded Portugal for the first time, with the help of the Spanish. Spain remained loyal to France, and made up a sizable portion of the French fleet at Trafalgar.

However, due to the catastrophic defeat of Trafalgar, along with the generally exploitative relationship with their new French allies, relations between the two soured. At the same time, Spain was struggling with a much-needed reform movement, which caused significant political strain between the liberal and conservative Spanish camps. Both were starting to show displeasure at their alliance with France. At this point, leaders in Spain began to look for a way out of their alliance.

Napoleon had become aware of this hesitation by the time of the second invasion of Portugal in 1807. Even though the Spanish lent their military assistance to the invasion, Napoleon decided it would be a safer move to take Spain by force rather than chance them becoming neutral, or worse, siding with France's allies. Napoleon's invasion was initially greeted with confusion from their former allies, which allowed the French to take the cities of Barcelona, Madrid, and others without much resistance. Under pressure from Napoleon, conservative King of Spain Charles IV and his more liberal son Ferdinand VII both surrendered their claims to the Spanish throne, after which Napoleon appointed his brother, Joseph Bonaparte as King of Spain.

Napoleon (as well as Revolutionary France in general) had an affinity for creating very loyal client states in the territories they conquered. Italy, The Netherlands, Switzerland – all had been re-organized into loyal puppet states of the French Empire. Napoleon intended Spain to be much the same, under the rule of his brother. Naturally, this totally backfired and Napoleon spend the next several years fighting a brutal guerrilla war against Spanish insurgents, and later Portuguese and British armies. This conflict was eventually dubbed Napoleon's "Bleeding Ulcer." This is all rather surface-level history.

As to why France did not want to annex Spain, that is a bit trickier. In addition to creating client states out of conquered territory, France also simply annexed others, including large parts of Italy, Germany, and the low countries.

There are likely several reasons this did not happen to Spain. The most obvious being size. Spain was a massive kingdom, with a largely rural population, relative to other conquered European states. Spain also possessed a massive colonial empire, which was already suffering from poor management in the Metropole. Simply put, it was large and difficult to govern – even the Spanish kings before Napoleon had been struggling. It would have been impractical to administer directly. Thus, delegation over annexation seemed the logical choice.

Second, Spain and France had major cultural differences that would have made annexation and unification....difficult. France had been pushing a secular agenda both internally and externally since the opening years of the revolution. There was massive resistance to this nearly everywhere, but the most extreme example was the revolt in the Vendée, an especially Catholic region of France. That revolt lasted years and killed upwards of 300,000 people. The vast majority of Spaniards held Catholicism near and dear to their hearts, therefore it would have been wise to allow them some religious leeway, which could be better facilitated under a separate regime.

Lastly, Spain violently resisted French occupation at nearly every turn. A full annexation would at the very lease require a pacified population, which would have clearly been a goal that could not have been achieved any time in the near future.

The first part of this reply is what you'll find in any conventional history of the French Revolution and Napoleonic wars. I'm most familiar with the works of William Doyle and other mainstream French historians. They offer a good starting point if you're more curious about the finer details of Napoleon's reign. The latter section is based off of research I have done into the other client states of Revolutionary and later Napoleonic France. I'll cite the main sources below.

Doyle, William. The Oxford History of the French Revolution. 2nd ed. New York, New York: Oxford University Press, 2002.

Gregory, Desmond. Napoleon's Italy. New Jersey: Fairleigh Dickinson University Press, 2001.

Harper, Rob. Fighting the French Revolution, the Great Vendée Rising of 1793. Yorkshire, Great Britain: Pen and Sword Military, 2019.

Lefebvre, Georges. The French Revolution, From Its Origins to 1793. Translated by Elizabeth Moss Evanson. New York, New York: Columbia University Press, 1965.

Lefebvre, Georges. The Thermidorians and the Directory. Translated by Robert Baldick. New York, New York: Random House, 1964.