You can buy food from the villagers or force them to give you goods; forcing them to give you goods will lower their reputation towards you (buying the goods from them will not affect their opinion of you). The reputation only lowers when you actually enter the loot screen, so if you accidentally choose the wrong option you can pick "Forget it" and avoid the reputation penalty.
Unless the villagers dislike you (see Reputation), you can recruit peasants to your army, either with the "Recruit volunteers" option or by talking to the Village Elder; unlike the villages your faction owned from the beginning, captured villages will offer you Recruits of whatever faction the village originally belonged to. Each recruit requires a small joining fee. The higher your reputation, the more recruits you will receive. If you have low Renown or a village is very poor the recruitment options will function but you will be told no-one was willing to join you.
Unlike towns and castles, villages cannot hold a garrison. If the village is attacked, only the Farmers are there to defend it. Building a watchtower (see improvements) will lengthen the time it takes for a village to fall, thus allowing you to come to their rescue.
From time to time enemies will try to raid your villages or besiege your castles; when this occurs you can head there and drive off the attackers. If it's a village being raided the Farmers will fight alongside you. If you do not deal with the attackers the village's prosperity will be significantly affected.
In the village you will find a Village Elder (he is the only villager who is stationary). From time to time he will offer village quests. Though completing these will make the village like you more, only two quests actually improve its prosperity, namely "Deliver Grain" and "Deliver Cattle" quests.
Another factor of village prosperity is that villagers traveling to or from a town in order to trade need to reach their destination safely. Their parties are small and weak, so enemy parties are a real threat to them.
If a town is infested by bandits, its prosperity will drop every three days until the bandits are dealt with or leave on their own.
The "Manage this village" menu option lets you build several improvements to enhance your village's prosperity or productiveness. Note that these improvements are not visible when walking around the village; you need to use the management menu to see what improvements have been built. The cost and construction time will be decreased if you or your companions have points in Engineer.
- Building a Manor allows you to rest at the village like you can at a town, and if you are resting there during pay day your men will only get half wages because they are not on active duty. Your party will draw food from the village during this time. A manor has a base cost of 8000 denars and 83 days. (Broken as of 1.003)
- Building a Mill gives your village a one time prosperity increase of 5%. It has a base cost of 6000 denars and 63 days.
- Build a Watch Tower if you have problems with parties raiding your village. It makes the village take 25% longer to be looted, giving you more time to come to the rescue. If you succeed in stopping the looters the damage normally caused to the village's prosperity will not occur. If your village is far away from enemy lands it will probably never be looted because there are always closer targets, in which case building this improvement is a waste of money. The Watch Tower has a base cost of 5000 denars and 53 days.
- Building a School will improve your reputation with the village by +1 per month. Improving your reputation with a village raises the number of Recruits who volunteer to join you. A School has a base cost of 9000 denars and 93 days.
- Building a Messenger Post will let you be informed about enemy activity near your village even if you are far away. The Messenger Post has a base cost of 4000 denars and 43 days.