"Upgrades are improvements to various parts of the castle, usually to add to the security or prestige of the place. Security affects how much taxes you collect as well as helps reduce the number of “bad” random events, while prestige increases the number of “good” random events as well as increasing tax collections, too."
A high-security fortress is likely to be short on individual freedom. Why can't you be a bad ruler and an effective leader?
"You can begin collecting taxes from your populace as soon as you gain the stronghold. The amount of taxes you collect increases with your prestige (because people know of you and like you), but the amount also increases with higher security, since some taxes are lost to banditry. You will want to keep both of those values high."
What if you want to be more feared than prestigious? People should pay up because they don't want to cross you.
"You can also employ hirelings to stay at your stronghold. These people will provide bonuses to your prestige and security, but they cost money to employ. Some will leave your castle if you stop paying them, but others will wait around to get paid again (but not provide any bonuses until they are)."
See, this is where I think you should be able to employ unsavory types, like ruffians and corruptible guards, to increase your fear rating and help you extract money and information from the weak.
"If you have cleared the dungeon and built a prison under your stronghold, then when you are fighting some of the named NPC’s in the game, you will be given an option to take them prisoner instead of killing them."
What if you want to take prisoners and make their executions public spectacles? Or have them fight each other to the death while taking bets on the outcome? Or force them to work in the mines, fields, or wherever would be most humiliating?
"Some visitors are wonderful and give good bonuses, and you will want them to stay as long as possible. [...] Others are not so great, and you will want to offer them one of your companions to act as an escort to their next location, or perhaps simply pay them to leave."
Of course, if you could play a bad guy, this would be the opposite. The wonderful visitors would be the people who the decent folk want gone and the not-so-great visitors would be the hero sorts who want to change things for the better (i.e., cause trouble.)
So, while I generally like the stronghold design, the theme sounds like you have to play a good guy if you want a useful stronghold.