I was confused until yesterday. I finally figured how the system works. Basically, at each turn you get to demand 1 resource which cannot be refused. In such a case the option will be "We demand this for your tribute or this means WAR!". If he refuses, it's automatic war (although I've never seen them refuse).
You cannot ask for gold or gold/turn, only resources. In the same fashion, asking for 2 tributes (either forced or capitulated) will be a 100% refusal and will still carry the reputation hit.
When I have no resource to demand, I will typically ask for gold or gold/turn. It doesn't work automatically, but most of the time it does. You can ALT-Click the vassal in the point list (right bottom) to quickly demand vassal tribute. BE SURE YOU DON'T ALT or SHIFT-CLICK a non-vassal, as it will immediatly trigger war WITHOUT confirmation.
I still think the master should be able to terminate vassalship at any time, or perhaps after 10 rounds like other deals.
Another thing to know about vassals is that you need to put troops in their cities (esp. border ones) in order to beef them up. If you go to war, I have noticed the AI will go for soft targets (vassals are usually soft). If they take too much out of your vassals, they can break off vassalship and will typically capitulate to the big enemy you are fighting. If anything, you need to protect your vassals better than yourself because loosing a vassal city hurts much more than loosing one of your cities.
On the bright side, I just managed a conquest victory with only 28% of the land mass by vassaling ALL the AI's I hadn't anilihated
Vassalage really changes the game. You need to think in terms of the Mogonlian, Roman, German, English, French empires... You don't actually replace the countries with your poeple, you just take over the commands and move on to the next target. Makes wars much quicker
Oh and also, to get an AI to capitulate, bombard, pillage, etc. You don't even need to have any significant gains. A city or two, the strain of 10+ rounds of war and strategic pillaing and bombardments will have the AI beg for it in no time. Be sure you grab it ASAP, otherwise the other AI's will jump on it.