This situation can be triggered once two competing Catholic nations in the new world begin completing colonial charters in the Age of Discovery. When this happens, a dynamic situation fires where both nations may petition the Pope to arbitrate the dispute. By leveraging influence within the Church, each colonizer can attempt to secure exclusive claims to vast swaths of territory overseas.

Importantly, this event is not locked to history. While Spain and Portugal famously divided the world in our timeline, your campaign might see entirely different outcomes. If, for example, France and Portugal are the leading Catholic colonizers, the situation could result in the Treaty of Lisboa, the Treaty of Havana, or another name tied to the powers involved.

In this campaign, its Sweden and Portugal who are divvying up the New World

In order for a colonial charter to complete, at least 1000 pops must be present in every location in the charter and you need 36% of the pops in every location to be either your primary culture or an accepted culture and 36% of the pops to be your nation’s religion. That means a location with 20000 natives will take much longer than a location with 200 natives to colonize. When the location is colonized, those natives will become tribesmen pops, a pop class that's harder to promote compared to peasants.