Not necessarily (and there's no real right answer). You can build AI to be fun and play a role or you can build it to be challenging and play a game. One review of GTA4 noted that MP was actually -less- fun for them because people were -more- predictable than the AI. People wouldn't normally try to fight on a swinging scaffolding... but the AI would. This isn't necessarily a binary choice either but favoring one side or another tends to suggest different approaches to problems because people tend to have a lot of... quirks and misperceptions.

For instance, you are a supremely lawful and altruistic faction. Your game-long ally is close to victory; closer than you are. However, the nature of their victory is not a cooperative one - them winning means you lose as opposed to possibility of you also winning.

A player is pretty much going to say "Screw you! I'm going to mess with you so that you can't win and I will".

An AI built to play a role will do nothing. They like you, they're good, they're not suppose to backstab, they should be happy that peace occurs, etc etc etc. 

An AI built to play as a player would... will attack you with more or less the same rational as a player would.

Agreed, at any rate, that you shouldn't really be able to 'force' a player or AI to do something... unless it's in a series of small steps. Forcing them to go to war or give up all their money, that's bad. But some games use the idea of forcing an action very well however, they ensure that forcing this is not a win-win for the initiator and lose-lose for the target.

I don't see why the idea of 'spending' Diplomatic Capital is so difficult to understand.

Let's use a real world comparison. You are at the bar with someone you don't really know who seems surly and often says the wrong thing at the wrong time. Due to this you have a bit of a stand-offish relationship with the guy. You're also there with a fun fellow who tells great jokes and makes you glad that he's around. Even though you don't really know the guy yet, he's good fun and you enjoy his company.

The Surly person asks you to buy them a beer. You don't really get along with the guy and he's made this request sound more like a demand than anything, so you flat out tell him no.

The friendly person asks you to buy them a beer. Sure! Why not, he's good value to be around. An hour later he asks for another one from someone else and - since he's such great company - they get it for him. Then an hour later when he asks for a third you put your foot down. No mate, you're good fun and everything but you're pushing it a bit far.

That is what Diplomatic Capital is. It isn't representing a countable item, the number ascribed to it is an abstraction. You can 'spend' it by pushing the good will of others too far. You aren't suddenly 'less diplomatic' by spending it, you're just pushing other people's good will too far. The numbers you have of it are consistently regenerating due to the manner in which it is gained. Similarly even if you have no diplomatic capital, you can gain some by trading resources to others in exchange for it. This represents people being more likely to think "That guy just gave away that gold to someone else who needed it! He can't just be a vicious bugger in it purely for themselves. Maybe we'll listen to his treaty request..."

The ZOC (Zone of Control) is the area under a civilization control (meaning some kind of presence by people, even if it's not constant).

Prestige is how interesting a city is for possible new residents ("Hey! We have pubs and stuff!!"). The better infrastructure, the more likely that will people will want to live there. Now Champion's charisma is to be used to boost that Prestige (yay!), which doesn't mean that charisma is Prestige but that while being a city, it's abstracted that his presence and actions there help to get some extra people to stay in that city.

The kingdom/empire reputation is fame. "Oh, you are Procipinee, slayer of rats, seeker of the lost compass, scort of noble people, darkling bane..." Right now, that I can remember, just helps to help you to get married and not sure if something else (recruiting Champions goes by Charisma but not sure if Reputation too). You may have Charisma 200 but if you haven't done nothing noteworthy (or your Champions), don't expect to be famous but to be rather anonymous.

Political Capital are your connections in the different layers of the different societies. The people you know, the people from who you an ask for favours, the people who is on your side and knows someone who owes them, people bribed... "Oh, I need some iron ore and I don't have the Gildar to buy some from Altar. Pulling some strings I may be able to get some ore from Altar for free. It'll cost me some connections there but I'll be getting that ore." And the more connections you have, the more difficult becomes for others to be "rude" to you and for them to be "impressed" by it (envy...).

imho

Edit:

for the multiplayer people: You already get better opponents so who cares?

Diplomacy Techs:

Blackmail - Allows you to take permanent control of enemy Champions by "paying" Diplomatic Capital.

Assassins - Allows to try to kill an enemy Champion (sorry, no Sov) by "paying" Diplomatic Capital.

One can dream...

Harley described the spending of DC well as well as why having an abundance can be beneficial (I've been able to slack on military due to outpacing everyone else in DC).

It occurs to me though that perhaps some of the tangled web over DC also comes from the resource in which it is gained: Scenic Views. Scenic Views imply that these locations are like Niagara Falls or the Grand Canyon. Places and sites from pre-Cataclysm days that are cool and, due to being in your ZOC, show off your control. However, the leap from "I have the Grand Canyon" into "Now give me some money cause I got a nice hole in the ground" may be too much for the concept. Perhaps as part of a larger solution, tweaking the naming and function of Scenic Views.

Being "stuck" with large quantites of DC isn't necessarily a disadvantage in the game. If you have a pile of the stuff, people don't attack you, which lets you dispense with a large military. Additionally, accumulation isn't really a problem: Resources which are abundant are already devalued in trading, so inflation keeps the DC pileup under control anyway: You have to pay more DC for something if DC has become inflated in the world.

Sure, it might be useless in one very specific class of game, "Humans Only", but in a Humans Only game, most diplomatic options tend to be of greatly reduced value, and humans do very bizarre things that fall outside of the diplomacy system in games anyway. People might figure out a way to use it anyway, even though it does nothing.

In virtual communist Rus-... Empire, AI exploits you?