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http://mountandblade.wikia.com/wiki/Honor
Kings in vanilla Warband typically bring in 10k. I've seen it go as high as 17k and once in a while, with weakened factions, you get much less. Also, Kings can never join your faction so I always stick them in my dungeons. Everything to gain, nothing to lose by doing so.
Unless of course you count the angry faction coming to your town to free their King...that might be one downside...or not.
I'm sure the wiki can tell you far more than I can but from a role-playing perspective, I like to keep my honour as high as possible (releasing enemy lords, refusing rewards, etc.). In my mind it would make everything a little easier with good people; recruiting, business dealings, relations with others, rebellions, etc. Not sure if any of that is true or not but I don't really care...it's still fun.
How useful is it? Meh. It makes good people like you more, but in many mods, good people are the least useful, because they hardly ever turn on their king, no matter how badly they are treated. It helps you get into a honorable family or to be allowed to court the daughter of an honorable lord, I guess.
It is not intuitive, but it is true: good relations with bad people are a lot more important than good relations with good people, in Mount and Blade. Bаstards get things done.
Anyway, I noticed that king graveth is kinda angry with me... for having my honour low.... FROM HIS MISSIONS!! *sigh*
One last thing.. I may be VERY wrong about this, but doesnt honour cap at 99?
Nope, mine is currently 202.
In Prophesy of Pendor however i'm grinding up to 70 honour so I have the option of forming my own knighthood, a pain in the ass when you're like me(ie* I like collecting enemy nobles in my prison and refusing ransom offers) :o
I tried the mod but didn't get far, it was odd.
Note: it takes long to upgrade your own order.
Prophesy of pendor is an awesome mod. :p