I haven’t seen if it works.  I did enjoy the dynastic system in FE.  It has such potential to be designed into a fun, effective, and colorful aspect of the games; the opportunities for chicanery, opportunism, and eye candy seemed endless.  It could really enhance the rather blah (meh) diplomacy system. 

I envisioned an arrangement where each noble (most heroes?) come from one of many lines within the domain.  Whenever a settlement ‘joins’ the sov’s domain, (is settled by a sov’s pioneer) it either spawns a noble family (with its own shield – heraldry –style).  if adjacent to initial settlement it may take on the sov’s line.  Or, as also with non-adjacent settlements (further away from capital) spawn (reveal) a separate noble line with ‘ties’ to sov’s royal line.

When conquering a settlement, does its noble line capitulate? Go underground to lead a guerilla revolt, or flee to their sov’s cities?  Offering a scion in marriage to other noble (royal) lines creates ‘ties’ between them (pluses on the diplomacy screen? , access at decent prices to some resources? Info?

City populations have percentages of loyalty to different royals / noble lines.  How sov treats different lines of nobility within domain affects many things.  Options include: (Dis)Loyality.  Spies.  Sobversion.  Popular nobles (popular with the hoi poloi getting extra troops when attacked within their ‘ancestral area.  The henchman mechanic could be used to tutor/educate up and coming scions in the various lines.  And, of course, high unrest levels in a settlement also cause periodic revolts.  If the occupying (or (oppressively taxing) sov does not have regular troop stationed in the settlement, the garrison automatically wins.  The settlement becomes independent, or reverts to the sov to whom the citizens/militia feels most loyal.  Spys, assassins, new babies, oh my.