Basically, people in the South are richer, live longer, and speak proper English, in comparison to the North. *smug face*
Seriously, though, there is a large cultural and economic divide between North and South in England. The dividing line is generally agreed to go from the mouth of the River Severn in the West, to The Wash in the East. The South East of England is the most populous and affluent region of the UK, whereas the North East and North West are amongst the most deprived.
There are numerous cultural differences as well, such as the simplistic divide between accents in the North and South (for instance, 'bath' is pronounced with a short 'a' sound by Northerners, but with a long 'a' sound by Southerners, so it sounds like 'barth'). Really, the insult probably comes from the stereotypes we have of each other; Northerners think of Southerners as posh and soft, while they are hard-working and proud of it, whereas Southerners think of Northerners as uncultured and backward (if we're talking about insults, anyway).
My view of the divide is that I was born in the right part of Britain, and no-one's going to put me down because of it. However, being born on the South Coast probably skewed that opinion a bit, as I tend to think of anywhere north of Oxford as 'Northern', including the Midlands. It's a great way to annoy someone from Birmingham, at least, if you call them Northern.