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They're basically commanders you can use for sub-squads or small stuff plus good fighters. Ransom is a cool idea though. This world's Not!Catholic Church is even more into mercy and negotiation despite all the fighting so ransoms would probably be even more important than irl.
Also there is a cap for Knights... if you have 2 already there will never be more knights showing up to be hired. So if you turn them into lords and send them to settle vacant lands you can hire new replacements again.
I don't really bother anymore... even my own sons of same culture are willing to betray me on a whim... Better to think of vassals as "Temporary" tax payers. Trade agreements are the BEST way to generate money and the best trade agreements are vs kings with lowest trade skills.