Becoming honorable is very beneficial in the later game, especially once the Kingdom of Perisno is formed, as each +10 honor rating will gain 1 point of relation with Upstanding/Good-Natured lords, at 1000 points a 100 relation is guaranteed, making them an asset for the kingdom.
After that talk to the prisoner and select the second option, player will release the prisoner and increase honor rating +1 after releasing 6 prisoners) also if player has strong funds, player can go to Priest Felixius or Priest Fyurs pay either of them 2000 aurums (first option) and player will get +2 honor and relationship with the respective religion for each payment. Thankfully in 1.1,3 honor can be balanced without too much difficulty, Honor can be gained by releasing lords who are defeated in battle, rescuing captive lords, releasing conscripted prisoner (this is new in Perisno, player can capture enemies by knocking them unconscious and then take them as prisoner. However as said by many players, being honorable is difficult in Perisno and it is true. Player will be honorable if his/her honor rating is +1~. It acts like karma and determines player's relation point with most lords. Honor rating is one of the important factors in Mount and Blade, including Perisno.