The two nations fought over Colonia until 1816 when Portugal made it part of Brazil before it was finally incorporated into Uruguay after that nation's independence in 1828.
Colonia today has a busy port terminus, an adjacent free trade zone, a strong textile industry - especially leather - and a lot of tourism, primarily Argentinians on short breaks. If you get the chance, join them in one of the mellowest towns I've ever visited. Hasta la vista, baby!