I don't think vassalage will work, because I don't think most players would willingly choose to allow their realm to be a vassal realm.
Vassalage works in reality because the ruling nation has a big stick. The vassal gets out of hand, and the master comes over and beats the crap out of them until they knuckle under. This won't be possible in the game. If you intentional put mechanics in to keep realms small, it will be too easy for the vassal to grow in size to rival the ruling realm.
