The Marcher Lords
The Marches of Wales did not revolve around the current borders of Wales. The Normans held lands deep within Welsh territory and maintained castles in Wales as far west as the Irish Sea. Yet the Lords of the March were not subject to the laws of England, and the March was not part of England. The Lords held their own courts and did not bend to the writ of royal law.
Within the lands of these Norman lords were pockets of Welsh territory. To simplify the situation once more, we can say that the English held the lowlands and the Welsh held the highlands, but again there enough exceptions to make this a dubious statement.
The authority of the Marcher Lords was far different from that enjoyed by English barons. The right to crenellate (i.e. build castles or fortify existing structures) was jealously guarded by the king within England. He granted that right carefully, and then only to men he deemed trustworthy. Yet the Marcher Lords could build and fortify castles at will.
They could also wage war on their own, a right definitely not available to their English counterparts. Yet many of the Marcher Lords also owned large estates in England, where they spent most of their time.
The English crown was not without authority in Wales; Henry I siezed the lands of the rebellious Earl of Shrewsbury in 1102, and took Pembroke Castle for his own. He built Carmarthen Castle and established some measure of royal control over the Marcher Lords of Deheubarth.
Henry did his best to extend royal power in Wales. If we can judge by his various bequests of land and titles he believed that he had the right and the authority to administer Wales. In so doing, he sought to grant holdings in Wales to those men he deemed trustworthy and supportive of royal rights.
Peasants as well as knights came to Wales in large numbers to serve the Marcher Lords. Henry I encouraged Bretons, Flemings, Normans, and English settlers to move into Welsh territory, mostly in the south. Knights were granted their own lands, which they held in feudal service to the Norman lords. Settlement was also encouraged in towns, most of which grew up under the protective shadow of Norman castles.