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Joined: Dec 2005
Vassal States will, in my opinion, be a more or less direct equivalent to "I surrender... for now." The game mechanic comes out of SMAC, which (for anyone who hasn't played it), features nearly-defeated AIs offering "here, have all my cash and techs and my undying allegiance, but please don't kill me."
With formal recognition of "Vassal State" as a treaty, and drawing on what precisely Vassaldom meant in feudalism, my guesses:
A Vassal State relationship is civilization-to-civilization, not on any more local level. The Vassal promises a regular tithe to the Lord, and the Lord promises (mostly) to not kill the Vassal.
Histocial vassaldom took this a bit further: the Vassal promised to provide men to the Lord to serve in his army. In early feudalism, the Vassal retained a degree of soverignty (although, technically, he held lease on the land from the Lord). The Vassal could accumulate his own wealth, and wasn't merely a subject of the Lord -- under weaker controls, the Vassal could exert a measure of independant foreign policy. In fact, Liechtenstein directly came out of such an arrangement -- it was "purchased" by up-and-coming nobles that wanted a seat at the court of the Holy Roman Empire.
From the Civ4 point of view, we can make a few educated guesses:
Both the player and AI will be able to enter into Vassal arrangements, so Vassaldom probably won't greatly restrict foreign policy. (It'd simply be Unfun to be unable to declare war against, or make peace with, a neighbour). There might be a one-way defence pact between Vassal and Lord, though -- this would be historically "accurate."
The Vassal would probably be subject to a regular "tithe" of some sort. My guess would be that a percentage of commerce would be siphoned off and given to the Lord civilization. This might be siphoned/given after the gold/science slider is applied (and thus the Lord would receive it as gold/beakers), or before (meaning it's up for grabs whether the Lord will get it as commerce, a fixed mix of gold/beakers, or just gold). I imagine that this aspect would be subject to game balance.
The Vassal would probably have a one-way open borders agreement with the Lord.
The Lord's obligations to the Vassal would be pretty minimal, encompassing mostly "don't kill me." I imagine that the Lord will be unable to declare war upon the Vassal, and this protection might extend for 10 turns (peace treaty duration) after cancelling the agreement (if the Lord cancels.)
Why would a civilization agree to becoming a feudal lord rather than outright conqueror? Maintenance costs -- the Vassal would get to keep all those good-for-nothing-for-the-next-thousand-years cities that get swept up in any invasion, and the Vassal state is suddently no problem at all.