List of prisoners.
You can take prisoners at the end of most battles or sieges. Some fights do not allow the option, such as freeing a village from bandits.
You can only capture the enemies who have been knocked unconscious through the use of blunt weapons (horse charging is also blunt damage). Very rarely, sharp weapons may result in wounding, due to reasons unknown (possibly the surgery skill on the opposite side). Once you have taken prisoners, you may recruit them to your party, ransom them to ransom brokers (found in taverns in towns), or garrison them in a town or city. Money from ransoms can vary, depending how big the army was, if you captured a noble, or how good it is if it's a soldier (in classic Mount&Blade, all soldiers are worth 50 denars).
Prisoners can be a great source of money if you have high prisoner management, or a town or castle to store them in. If you have a town, you can put all your prisoners in it until a ransom broker appears in your tavern. If you have no town but have higher prisoner management, you can travel around capturing prisoners and selling them as you find ransom brokers. If you have a castle, you can check nearby towns until you find a broker, and then convey your prisoners to his location.
Your prisoner management skill governs how many prisoners you can take at a time: 5 for every point. The skill's base attribute is charisma.
Having prisoners slows down your Party Speed across the map. If you need a quick boost, such as to evade an enemy, releasing all of your prisoners can give you a nice increase at the cost of not being able to ransom them.
Noble Prisoners
You may occasionally take lords or kings prisoner if they fail to escape from battle (70% chance to escape after their army is defeated). Every 24 hours, there is a 5% chance that the kingdom from which they come will offer denars (or Thalers) to get the prisoner released; refusing this will result in loss of honor, but will prevent them from raising a new army for as long as they are held captive.
You can still capture a lord without using the prisoner management skill. If your prisoner capacity is reached, the lord will still be captured, possibly overfilling your max capacity (e.g. 6/5).
Prisoner lords will attempt to escape captivity every 48 hours, their chance of success is dependant on where you are holding them: 50% from within your party, 30% from a town or castle without a prison tower, and 5% from a town or castle with a prison tower.
If you keep the captive nobles as your prisoners while you travel, you will notice that they gain the + symbol next to their name, like they have leveled up. However, there is no way to upgrade their skills.
Rescuing Lords
You can rescue captured lords of a neutral or friendly kingdom from your enemies in two ways. The first is to simply defeat the lord that took them prisoner in battle so long as he has not put them into a dungeon yet, this will automatically free the captured lord and you will gain a small bonus in relation with them.
In Warband, a second option is to sneak into a castle or town where a lord is being held captive, knocking out the prison guard (this can be very difficult in towns where you may find yourself surrounded by up to 4 high-tier troops, in a confined space, wielding only robes and a quarterstaff) then entering the prison and telling the captured lord that you're there to rescue him. This may become easier by bribing a village belonging to that town/castle to start a fire. The fire will start in one hour or at midnight by your choice, and most of the guards will be gone while fighting off the guards with the prisoner.
It is also possible to rescue lords from a castle or town if they are held by a faction that is neutral to you. This is more attractive than attempting to sneak past the guards as it allows you to retain your normal adventuring equipment, which makes fighting a half dozen guard units quite a bit easier. It raises your relationship by 7 with the rescued lord as well as increasing your relation by 2 points with his home faction. There is also honor associated with ending their incarceration. There are no negative effects with the ruling lord or faction. In addition, if the captive lord has relatives, you can speak to the relative to receive a quest to rescue the captive lord, further increasing your relationship, monetary, and experience gains. In total, this is one of the most effective ways to increase honor and relations as an unfactioned lord, and goes a long way towards building a future kingdom. Since troops are completely unnecessary it is best to just use a bare bones party of heroes and free all the lords possible. This is excluding the possibility of running into a roving hostile band.
Once you have gotten the lord out of prison (it is a good idea to tell him to fight together with you, then order him to hold his ground in a corner out of sight) you have to defeat all the troops in the town or castle, without letting the lord get knocked unconscious; this can be very tricky when there are a lot of archers around. If a lord is knocked unconscious you will have failed the rescue, and the game will tell you that he had to be left behind.
You cannot attempt a prison break in the same castle/town more than once every day, as the guards will instantly recognize you.
Captive Ladies
After capturing a castle or town, you may find ladies who failed to escape. In Warband, you can talk to them and let them go free (+1 relationship), or hold them prisoner for ransom (loss of relationship and honor, profit if a deal is offered).
Recruiting prisoners
You may attempt to recruit prisoners into your party through the Camp menu once every 24 hours.
This may allow you to acquire a specific unit without having to train them yourself, or may give you a quick boost to your troop numbers. However, doing so comes at a cost to Morale of -3 for every prisoner that accepts your offer. There is also a high chance that freshly recruited prisoners will desert your party within the following day, although this can easily be prevented by putting them into a garrison.
The chance of prisoners accepting the deal is based on your Persuasion skill. 0 Persuasion will have a success rate of 40%, while 10 Persuasion will double that rate to 80%; every point in persuasion increases the rate by 4%.
When recruiting prisoners, the choice to join your party is not made by individual units, but rather a troop type. In other words, if you have 3 Nord Recruits as prisoners, you will either get 0 or 3 of them.
Exploit: If you really want to recruit prisoners and have enabled quitting without saving, save before trying to recruit prisoners. The chance of prisoners joining you is completely random, so loading and trying again could make prisoner management pretty useful, considering you can recruit prisoners once a day.