Greetings! This is a rather interesting question indeed, and one that appears to have slipped under the radar of AH questions about the First World War peace settlements which other travelers have been rightfully curious about. Fortunately for us, because Memel was the subject of Nazi Germany's successful pre-war expansion efforts in 1939, there are a treasure trove of primary sources from various academics of 1935-1936 when the issue of Memel remained a highly contentious one. Rather unfortunately however, Memel has also slipped out of the popular coverage of secondary literature on the Treaty of Versailles, though perhaps some other AH traveler can contribute further reading on the matter if they have stumbled across any themselves. This response will deal with both OP's questions, and also delve a bit deeper into the ending of the Administration of the Memel Territory as well as its origins in 1919. Let's begin.
Note: The naming of Memel can be a bit confusing at times, as the Lithuanians called it Klaipėda even when they were not in possession of it, whilst the official German name for it since the days of the Teutonic Knights was Memel (and before that, Memelburg*).*
A Sleepy Little Prussian Lithuanian Russian Port
"The little town of Memel lies in the southeast corner of the Baltic at the northern outlet of the large, shallow Kurisches Haff [Curonian Lagoon]. An ever-shifting sandbank, a little more than a mile in width, separates the lagoon from the sea excepting in the front of Memel, where the wide Niemen River breaks through the sandbank as it empties into the Baltic."
- John A. Gade on Memel's geographical description, 1924.
Prior to 1917, Memel and its surrounding territories had been part of Germany (though not the German Empire, as that nation would not be formed for quite a few centuries) since 1422, when the Treaty of Melno See was signed between the Teutonic Knights and an alliance formed of the Kingdom of Poland and the Grand Duchy of Lithuania. For the next 497 years, Memel bore witness to a quincentenary [500 years] of European advancement, shifts, and wars. Not even during the brief occupation of the Swedes, the Russians, and the French during the late 18th and early 19th century did Memel formally change hands, remaining a sleepy little strip of land in the northeast corner of Central Europe. Edgar Packard Dean, writing in 1935, paints a rather idyllic picture of this bit of territory for us:
"There is a strange contrast between the history of this sleepy Baltic port in the centuries prior to the Paris Peace Conference and its prominence in the subsequent fifteen years. Until 1917, Memel had few claims to fame. As a port it was surpassed by the greater activity of Konigsberg and Danzig. Historically, it was overshadowed by Tilsit, that city further up the Niemen where Napoleon and Alexander of Russia had divided the world between them."
Even after the Napoleonic Wars, from the Congress of Vienna to the Paris Peace Conference, Memel remained a part of Prussia (and later the German Empire). The territory was during this time an interesting place where two cultures of Europe firmly mingled and co-existed with little nationalistic sentiments to one side or another. . From 1871 onwards, it was the very northern tip of the German Empire, and officially bordered Russian Lithuania after it had been incorporated into the Russian Empire in 1795. Ruth Leiserowitz on how this difference in ownership of the territory represented itself through the populaces:
"The Lithuanians on either side were different from one another in several ways. The Prussian Lithuanians were Protestants and used Gothic script. On the other side of the border, the Lithuanians attended Catholic churches and used Latin script."
In 1910, the census for the Memel region recorded 141,000 inhabitants of the City and the surrounding strip of land, with about 67,000 of those claiming Lithuanian ethnicity. During the First World War, Memel experienced firsthand the ravages of conflict when Russian troops made various incursions into the territory, and civilians fled the area to avoid being caught between the German and Russian forces in the region. on February 16, 1918, an independent Lithuanian Republic was proclaimed in Vilinus, and it seemed as though East Prussia (the region of Germany to which Memel had belonged), had lost its status as an important economic hub. Memel was not directly impacted by the proclamation of Lithuanian Republic, but its ethnic makeup of Lithuanians and its centuries-long position as the "sleepy crossroads" between Central and northeastern Europe meant that it would soon be the sleep crossroads upon which the eyes of the peacemakers at Paris would fall.
Memel at the Paris Peace Conference
"Then came the War, which need not detain us; but afterwards it took time to sort out the Baltic States, define their frontiers and admit them to the League of Nations. The Allies spent most of 1919 wondering how they could get the Germans out of the Baltic States without letting the Bolsheviks in."
At the time of the Paris Peace Conference in 1919, official figures for the population of Memel City and its surrounding land was put at 150,000 inhabitants, 25,000 of whom were Germans and 125,000 Lithuanians. The Memel Territory seems to have not been part of the Allied Powers initial plans, but it was eventually decided that if the Allies were going to secure Poland's security and detach everything north of the Niemen from Germany, then Memel too would have to be dismembered from the Empire. Under Article 28 of the Treaty of Versailles, the borders of East Prussia were redefined, with Memel being clearly removed:
"...thence the old frontier of Russia to a point east of Schmalleningken, then the principal channel of navigation of the Niemen (Memel) downstream, then the Skierwieth arm of the delta to the Kurisches Haff;
thence a straight line to the point where the eastern shore of the Kurische Nehrung meets the administrative boundary about 4 kilometres south-west of Nidden;
thence this administrative boundary to the western shore of the Kurische Nehrung."
Part 1 of 2