Final answer:
William Penn and Lord Baltimore disputed the territory surrounding the northern boundary of Maryland, particularly where Penn was establishing Philadelphia south of the 40th parallel. The conflict over the region was not resolved until the Mason-Dixon Line was surveyed in the 1760s.
Step-by-step explanation:
The land that William Penn and Lord Baltimore disputed was the territory surrounding the northern boundary of Maryland which encompassed the area where Philadelphia was later established. This dispute arose because the charter granted by King Charles II to Penn did not clearly define Pennsylvania's borders. There was confusion involving the 40th parallel which Maryland claimed as its northern boundary. This region became contentious because Penn was building Philadelphia south of this parallel, implying it was within Pennsylvania's domain. The disagreement escalated to the point where it could not be resolved until surveyors Mason and Dixon established the Mason-Dixon Line in the 1760s, settling the border disputes between the two colonies.