You are told "good things may happen" if you expand your castle, but beyond the associated Plaza Tickets, what effect does your castle size have?
There are 20 levels to your castle. The first few unlock abilities/perks. Subsequent castle upgrades update these abilities. The abilities you can unlock & upgrade are:
Expanding once gives you a ticket for a hat. Expending a second time allows you to hire 300 troops for ten coins. That's all I've done so far.