In 1215, the city Republic of Genoa set out to build the first fortified castle on the site where the princely palace stands today. The ruling families in Genoa were deeply involved in the running battle between emperors and popes. The Grimaldis were one of these ruling families and by the end of the 13th century they came up losers in the cities internal power struggles and were exiled from Genoa.
They thought that they were entitled to at least some compensation from Genoa and took the castle at Monaco by force. For a hundred years, the castle was passed back and forth between the Grimaldis and Genoa, until the Grimaldis finally settled in permanently in 1419. In 1489, Monaco was accepted as an independent state by its two direct neighbors, the Kings of France and the Dukes of Savoy.
In 1612, Honoré II took on the title of Prince of Monaco in a move that was seconded by the King of Spain. The French Revolution saw the Principality annexed by France, but it was restored in 1814, and again in 1815 after the Hundred Days. But the income of the princes had come from their French lands, not from Monaco, and Monaco became incredibly poor until Charles III struck a deal with Napoleon III: Monaco would cede its (already lost) lands to France; in return, France would build a road and a railway connection to Monaco.
Charles III then built a casino, a very shrewd move as gaming was illegal in France and Italy. The income from the casino became so high that all income and inheritance taxes were scrapped. In his honor, the hill on which the casino stands was renamed Monte Carlo. In the Second World War, Monaco was briefly occupied by the Germans, despite the fact that Louis II was markedly pro German. He was so markedly pro German that his grandson and heir (later Rainier III) left Monaco in disgust to join the expatriate French Forces.
Rainer III staged his major stunt with his marriage to Hollywood star Grace Kelly in 1956 bringing the Principality into the living rooms of TV watchers around the world. Since then, Monaco is on the wish list of every traveler. Monaco also hosts a Formula I race that defies just about every rule applicable to every other race in the world.
The official language of Monaco is French, but the locals speak a dialect called Monegasque which is related to Ligurian Italian. It is part of the school curriculum and you are allowed to take your exams in it should you prefer it to French.
Monaco might be the second smallest state in the world after the Vatican, but it is one of the few to grow during the 20th century. By artificial land gains from the Mediterranean it managed to grow by a quarter of its former size to over 200 ha.
Further reading
The Principality of Monaco in World War II
The Title Conundrum of Monaco
Princess Antoinette of Monaco, Baroness Massy
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