What I do depends completely on the situation. If they are rebels I usually let them go. If a capture an heir or king, and the faction has lots of heirs, I will ransom them. But if they don't have any/few heirs, I kill them so they will be eliminated. If I don't capture any royalty, just faction units, I kill them, cause I don't usually need the money and I don't want to have to fight them again.