The Free State of Northern California is an autonomous region in the USA. It is located in North California. It includes Morro Bay which became Night City.
The first state to declare itself a free state was Texas in 1999 (renamed itself The Republic of Texas), after the government tried to control its weapons. Texas was followed by Alaska (2000), California (2002), Nevada (2003), and Utah (2014). The Free State of Northern California then ceded from the rest of California (subsequently named Southern California) in 2012. Here's a map USA in 2020
The border between the Free State of Northern California and the Free State of Southern California is just south of Night City.
Night City occupies the space corresponding with Morro Bay in real life, but with some geographic changes. Night City’s original name was going to be Coronado City, but the name was changed after the death of its founder, Richard Night.
Night City has no connection to Coronado, California which was incorporated in 1890. That is in Southern California.