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I read from the dev diaries that the Sovereign is supposed to give the Kingdom some benefits if you leave him in the capital. I just put my sovereign into my capital and checked the growth, production etc and it hadn't changed at all. Was this feature scrapped at some point?
Sovereign has a bonus to unrest above and beyond the normal champion amount I believe.
afaik the sov only reduces unrest of a city, but that's not restricted to the capital. maybe that was an early idea that was scrapped. the sov generates prestige by leveling up (0.5 points of prestige per level) so he directly influences the growth of your cities, but he won't level up if he sits on his throne in the cap 
so i guess that feature was changed to allow the sov to play an active role and still have a significant impact on the development of his nation.
As has already been said the Sovereign provides unrest to the city he is currently in (not only the capital). So the city hosting the sovereign will have -15% unrest.
Other benefits include, as has also been said, +0.5 growth per level. This benefit is gained no matter where the Sovereign is at the moment, and at the early game can make a big difference. Just send the sovereign to kill nearby monsters and he hopefully will level up a few levels and boost original growth, giving you am early advantage (or perhaps allowing you to catch up with other nations who did the same).
The sovereign also gives your faction +2 mana each turn and his abilities in addition to the kingdom/empire and race abilities make for a different play style in each faction.
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