George,

You are right that Lincoln did not have the power to free slaves in the South in a legal or judicial sense, I guess you could say. He was not rewriting the laws or codes for Southern states (they didn't recognize his authority anyway). Instead, it was a practical and military matter. Slaves of secessionists that came into Union lines were now officially accepted as "contraband," meaning that Union authorities were no longer required to return them to their owners.

It was a pretty complex situation. On one hand, as you say, Southerners believed they were part of another country and that Lincoln had no say over them. On the other hand, Unionists believed that the South was still part of the Union, though in rebellion, and that ultimately federal authority was in place. In reality, the Confiscation Acts and the EP dealt with both scenarios. The Confiscation Acts established the policy that slaves were property that could be legitimately confiscated for a war effort---much like securing horses or foodstuffs from an enemy and for oneself.

More importantly, the Confiscation Acts and then the EP helped establish a policy for federal officers who faced Southerners (often secessionists) who tried to claim that their slaves were personal property protected by the US Constitution. (Sherman dealt with this too, if I recall correctly, with Southerners who complained of his destroying or taking property. He pointed out that one could not reject federal authority and the US Constitution only to try to gain protection under them.) Some Union officers had returned slaves to their masters early in the war. Other officers were unsure what to do. Thus, the Confiscation Acts formally outlined federal policy.

This also explains why Lincoln could not and did not try to free slaves in northern or loyal areas. The Confiscation Acts were military measures dealing with property. Though they had a moral benefit, they were not primarily humanitarian in nature.

Lincoln's authority here was as commander-in-chief during a war. That authority only stretched over those areas in rebellion or in conflict. Thus, he literally had no authority to free slaves in loyal areas.

Finally, there is the political matter to consider. Lincoln resisted issuing his EP for a while because he was afraid of what loyal slaveowners in border states might do. He feared border states joining the Confederacy if slavery was targeted even in areas under rebellion. To force Kentucky, Missouri, Delaware, Maryland, and West Virginia to abolish slavery in 1862 would have been devastating to the Union cause (as well as impossible).