Vatican is located in Europe.
The official ISO 3166 code for Vatican is:
Facts about the flag:
The Vatican City flag was adopted on June 7th 1929, when the city-state was established with the Lateran Treaty.
The flag had previously existed but fell out of use when the Papal States were conquered by Italy in 1870. When the flag was reinstated, it was decided to turn it around so that the coat of arms was positioned on the right-hand side (heraldically it was on the left) to signify the difference between the Vatican City and papal power.
From a heraldic point of view, the yellow and white colors represent the metals of gold and silver. The coat of arms in the white band includes the keys of Saint Peter: the loosing and binding keys to heaven. These are the keys given to the apostle Peter by Jesus.
Find out more about Vatican on Wikipedia. You will allways learn something new!