According to the civilopedia capitulated vassels become automatically free after they grow beyond half of the master's land and population size. However in my current game this has not occurred. Is this a bug or has something been changed? Or am i not understanding something?

In the attached Game Save File you will notice that Ethiopia is still not free.

They CAN free themselves at that point, Ethiopia may like being under your portection.

IMO that feature is unobtainable on huge maps. Maybe it should be based on power instead?

It's obtainable when the master's size and population gets reduced due to losing a war.