Something like the papacy we know today began under Pope Gregory VII, elected in 1073. Under Gregory, papal power became the basis of everything, a principle that would have been foreign to Christians during most of the first millennium and which is still rejected by Christians in the East and of course Protestants.
According to the late Cardinal Yves Congar, Gregory "ended up by making the Church itself into a legal institution." In its relations with temporal powers, the church "was led to adopt very much the same attitudes as the temporal power itself, to conceive of itself as a society, as a power, when in reality it is a communion, with ministers, servants."
It was Gregory, then, who "launched the second-millennial papacy as a legalistic, monarchical office a concept foreign to the first-millennial Church and to the whole of the East, past and present alike" (quoted by Richard P. McBrien in Lives of the Popes: The Pontiffs from St. Peter to John Paul II).
The pope at this time became the monarch we now know. Many treat the period inaugurated by the reign of Gregory as the apex of the papacy. So impressed are they by the power and grandeur of the pope as monarch that the idea of a collegial pope who stays in the background has largely disappeared. This goes a long way to explain the popularity of John Paul II, a pope who has done much to restore centralized power in the papacy.
Some of the most influential, powerful, and important popes in history ruled in the period between Gregory VII and the Protestant Reformation. During the same time, though, some of the worst and most corrupt popes reigned as well.
The more centralized power becomes and the less checks, balances, and oversight play a role, the greater the likelihood of corruption even under those with the best of intentions. Centralized power also means that corruption can do far more damage because corruption at the top can more readily spread out to the rest of an organization. Whereas papal corruption during the first millennium tended to be limited to Rome and Italy, papal corruption in the second millennium radiated throughout Europe and beyond.
This was a primary force behind the Protestant Reformation. There were other social, political, and economic influences at work as well, but the corruptions and problems that had afflicted the church for almost 500 years certainly took their toll. Whereas the schism between East and West ostensibly turned on theological disagreements (alongside political undercurrents), the schism within Europe ostensibly turned on corruption, crime, and alleged violations of the basic principles of Christianity.
From the Protestant Reformation until the mid-20th century, the Catholic Church was essentially on the defensive. First it had to react to the Reformation. Then it had to react to the Enlightenment. Then it had to react to the modern development of liberal democracies and religious pluralism. Then it had to react to the growth of political ideologies like nationalism, communism, and fascism.
In 1860, the papal army (yes, the pope still had a real army at this late date) was defeated at Castelfidardo and the Papal State was absorbed into the kingdom of Italy. In 1870, Italian forces finally occupied Rome itself. From that point on, popes retained temporal control over just the land in the Vatican. Relations between Italy and the Vatican were not solidified until Pope Pius XI formalized a concordat with Benito Mussolini in 1929.
Reactionary defensiveness against modernity began to take a back seat with the Second Vatican Council. Rather than simply fight against everything modern, Pope John XXIII decided to adapt the church to as much of modernity as seemed feasible. Mass would be said in the vernacular rather than Latin. The monarchial papacy would be softened with more collegiality on every level. Biblical interpretations could be informed by modern understandings of language, science, and history.
Today the papacy is as much on the offensive as on the defensive. Communism and fascism are largely gone; nationalism isnt nearly as much of an issue as it used to be. Secularism and indifference towards religion are, however, regarded as serious issues. John Paul II has done much to reverse many of the modernist trends of the Second Vatican Council: restoring the monarchial papacy, eliminating collegiality, and asserting a greater political role for his church.
Where will the Catholic Church go in the third millennium of Christianity? Will the reversals launched by John Paul II continue, or will the reforms begun by John XXIII be restored and expanded? Only time will tell, but one thing must be clear: nothing about the current structures of power and authority have been present since the beginning. Everything has changed and evolved and will continue to do so.

