Rather than a soft vassal limit, I think it would be more immersive if you could designate an inner clique/circle/court/sphere of influence to personally maintain closer ties. Which sounds kind of weird at first but it's kind of analogous to that clichéd statement (truth or not) you can only ever know 100 people because the human brain isn't capable of recognising beyond that limit. Automatically everyone added to your council would enter the inner circle and would be free slots; Your Chancellor (and maybe spouse?[historical precedence]) would also be strongly influence this mechanic.
I'm unsure if the system would work better if your designations were counted by number of individuals i.e. 5 diplo = 1 designation or 5 diplo equalled 20km, 1 duke is 5km away from capital designate him, you have 15km left to spend to better simulate the cost of staying in close contact with further away lords.
There would be both state and individual designations, Charismatic leaders are very ideal at juggling the whims of those around them, however someone with poor social graces has a better chance of alienating those around them. Ruler diplo would have larger positive negative consequences, state diplo would have a more marginal positive and negative effects. State diplo would also be influenced by prestige more, whereas those with a closer proximity to a persons aura/personality would tend to dispels any myths created around them (Charles II of Spain). Individuals that share similar hobbies (hunting/carousing) could potentially bond easier because they can hunt together (William Rufus
or become drinking buddies, etc.Those of different faiths and cultures might be poorly served by ruler diplo if you have a mediocre ruler (benign negligence should not be underestimated as a factor holding together dissimilar/fractious nations in the past). I think the way the mongolian empire formed could be characterized as a powerful overlords who relatively asked less/intervened from their vassals who would be much more autonomous than the kingdoms around them.
I think the chancellor should also be able to make these designations too on behalf of the ruler, which I think faithfully represents some of the very significant second in commands (Pasha for Sulimen), but a minor mallus for non-noble appointee (maybe depending on govt type/laws). I really like the idea of a lustful hedonist, not alienating a pious scholar, because he is primarily dealing with a highly relate-able minister (de-emphasise some ruler traits with chancellor trait). However as a chancellor develops strong relationships, vassals become indirectly loyal to you, and highly value his point of view over yours (depends on chancellor skill). Potentially a disloyal chancellor might co opt his portfolio to build factions, without liege knowledge, similarly to how a disloyal spymaster influences plot discovery chance (Possibly a chancellor can covertly join a faction and recruit, or create a covert faction which may or may not declare one way or the other in a civil war, or blackmail the liege for conditions to not declare one way or the other?).
European courts could amass quite an entourage and many nobles would be familiar with their liege's but may not. The designation system sort of represents the time that needs to be spent communicating and managing your lords (especially getting your fair share of taxes). As crown authority increases so does the budding bureaucracy so state diplo becomes more prominent (Roman Empire). Possibly once you are getting to the size of the Roman Empire you might need to rely on similar schemes of investing much more power in other characters/rulers such as dividing you realm into administrative divisions (à la east and west roman empire).
One of the reasons i like the designation system is that at the moment vassal opinions all equally weighted by soft limits, the point of this system is to make nobles on average have the same opinion as the old system, but noble's would be at one extreme or the other. It would also be important for there to be a change in events to reflect the proximity to certain subjects and not others, but tourneys, feasts and weddings become much more important for the running of your realm. Because you are limited in dealing with more and more vassals, big events become really good opportunities to communicate with more distant vassals. I really like this idea because every now and again you come across rulers at the time who seemed to spend exorbitant amounts of money on themselves or grand events which from today's perspective seem silly. So you force players to spend their income on domestic miscellany that is quite historically accurate but atm not a more noteworthy feature of ckII.
Famously William the Conqueror was known for dedicating time to travel throughout his realm to settle disputes and later to empower judges with his own powers to settle disputes. Similarly several Roman emperors famously toured the empire. A really simple mechanic is to extend an almost identical game mechanic already present (in hiding/pilgrimage) to tour your own realm. Obviously you would need unique events to make it worthwhile, but i think it would be a really active way the player could spend their time stabilising their realm at the cost of doing something else (maybe a travelling court would be smaller, waging war would disrupt a tour). <-I think this game mechanic is probably one of the easier ones that can't be implemented by modders but could allow Paradox to relax vassal limits and make the game better for everyone.
I think for balance and realism any positive or negative designation effect should start at 0 and tick towards a value.
Also now that the court (and whose in it) become more prominent you could highlight and already present feature of vassals leading armies. Your in regular contact with the duke of wessex and you've been discussing and preparing for a glorious holy crusade against the heathens in the baltic somewhere. Your duke also keen for glory volunteers all the troops he can muster but is now permanently in control of his troops. Relationship still affects the levy you can raise but has more player interaction.
I think two other important changes to be made would be to greatly reducing the amount of spawned lowborn npc's. It makes parachuting same culture/religion nobodies into powerful vassals that are easy to manage. There should be some form of a mallus for not rewarding vassals (who contributed large armies) and elevating non-noble nobodies to large tracts of land. Alternatively changing the way lowborns are randomised so that competent rulers are much easier to aquire, so that if the player needs to assign new lands they are more likely to be forced to choose a more suitable candidate from an existing dynasty.
And also crown authority/laws should not be universal but much more granular. Obviously setting unpopular areas with low crown authority would make the game way too easy, so i think there should be much stronger implications from differing levels of autonomy. Maybe Once you're a certain distance from your capital you're just too physically limited in personally controlling affairs, so maybe local lords gain de-facto more power/privileges/autonomy (subject to technology?/stats?).
Well that's a fair few gameplay ideas, I'm reasonably sure that most of these would make any soft limits mush less noticeable and impact play less significantly, although I admit they're still there to some extent, but any arbitrary limits are very much obscured within gameplay. I hope my ideas are clear enough, I think they separate enough not to be overly reliant on each other so they can be implemented individually, although there would need to be a lot of rebalancing. As become more reliant on state diplo you might need to spend more money maintaining a political structure to accommodate the extra effort. Sorry for the huge wall of text.
Summary
-You designate where in your realm to devote your personal sphere of influence.
-internal pilgrimage of your realm.
-Buff chancellor's role and thier loyalty inherits some of the dangers of the spymaster but for factions instead of plot power.
-Distance mallus'
-Reduce player reliance on generated characters
-Culture/Religious relations more strongly represented by proximity and events.
-Crown Authority/Centralisation/Autonomy is not global.
-Maybe easiest implemented as protectorates, suzenranity's, etc
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