To build castles, you need a green slot free after the castle has been designed. When the green slot is free, click on your realm and you should see a green 'build' button.
As for the pope, yes, he's a holy pain in the behind. The best way to get around him is to kill him. Its really fun, because fighting the pope is challenging as heck. If you beat him and everyone else, you get a different ending.
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