I don't think people mean for HOI IV to be a simulation down to the pop level, just that the game should simulate these major parts of the international diplomacy of the time.
Let's take the peace-conference system as an example. Of course you're not going to create a separate peace-event tree for every single nation or combination of nations, that isn't feasible. Instead you create a system that tries to model the underlying idea behind peace conferences (divvying up the spoils based on bargaining power/strength) so that you can easily extend it to every nation, so that even Hungary can have it's own peace conferences with other minors.
Same with minors that take over territory in the sphere of a major, or blobbing minors. You're not going to model event trees for the off chance that Hungary annexes Austria, or in case Venezuela decides to conquer each South American nation one by one. Instead, you're going to take the peace-conference route, and create a system that tries to model the underlying idea. In the case of Hungary annexing Austria the underlying idea could be that Italy and Germany both have claims on parts of that territory, and that gives them a reason to intervene in case of annexation. Same with blobbing minors, model the idea that a growing threat (Germoney) makes it's neighbors uneasy and more likely to all with one another.
From what I can see, the basic functionality for this is already in the game. Making Germany and Italy (through their cores) part of a peace conference should be feasible enough. Hungary could then choose to grant them some lands to appease them, or risk war or giving them a casus belli. Same with blobs, maybe countries that raise world tension could raise the likelihood of their minor neighbors allying, etc.
