
You’re looking at the junction between a wallpaper border at the top of a wall and the ceiling. You can see crackled and flaking paint on the ceiling.
This was almost surely caused by the previous wallpaper installer getting paste on the ceiling (which is typical and normal) but failing to wipe it off completely.
The paste is clear and difficult to see. Even when you do a diligent job, it’s easy to leave some residue behind.
The problem is that wallpaper paste attacks water-based paint, and will cause it to do what you see above … crackle, flake, chip off. This can happen if the paint was in place before the wallpaper paste got on it, or if there was paste residue and fresh paint was applied on top of it.
In fact, the decorative paint finish called “crackle finish” is accomplished by applying hide glue onto a surface and then coating it with latex paint.
The crackly paint on the ceiling is unattractive, and impedes adhesion. It takes a lot of scraping and sealing and skimming the wall to rectify this.
A way to avoid this is to astutely wipe off all paste residue. Better yet, what I do is to use special plastic tape at the top of my wallpaper strips, so that no paste gets onto the ceiling in the first place. Do a Search here to see previous posts describing that technique.
You can also use a stain blocker like KILZ Original oil-based primer, or BIN shellac-based primer, to seal off the area before painting. There are water-borne primers that claim to seal such problem areas – but I prefer to stick with oil or shellac.