(I promised humans and their capabilities last time. Sorry, got distracted. I will return to that topic.)
The Daemon Lords' biggest role in the game is simply to be oppressors. They are not in a majority population-wise, but they are coordinated, violent, and terrifying. The PCs are assumed to be rebels against the authority structure, whether on a formal and organized level or more like wandering samurai.
Earlier playtests of the game had a cluster system similar to Diaspora's, including a rating for the relative freedom of a given community. First, I think the freebooting nature of Diaspora is ill-suited to Chrysalis, at least at the beginning. Second, I've observed that the real meat of a cluster system is not in individual ratings but in their interactions. Two star systems' ratings produce story: say Arcturus has Technology +2, Environment +1, and Resources -1, and Beowulf has Technology +1, Environment -1, and Resources 3. It's easy to see that Arcturus could be using its tech advantage to reap Beowulf's resource richness, keeping them at pre-spaceflight technology on purpose. Any system's ratings by themselves paint a little picture, but it's the interactions among them that produce conflict and story. Put together half a dozen of those and the connections among them and you're cooking with gas. Third and finally, I just think it makes more sense to have a story about oppression if you don't randomly roll and come up with a free community. At the start, no one is free.
So I think the variable that works here is not "how oppressed is everyone?" The answer is always "lots." But in what way, now that is interesting, and brings me to the title of this entry. I've read Foucault's Discipline and Punish once some years ago and have recently been re-reading it. Foucault's thesis on the development of technologies of control is that you start off with punishment of the body, first as a sort of revenge by the monarch, who has been outraged by a crime; then you develop to a type of "educational" paradigm, where bodies are marked in specific ways to serve as instruction to the rest of the population; and finally there is a sort of productivity-focused, industrialized re-conditioning, to return the offender to being a contributing member of society. This suggests to me a fun continuum from those places that have the usual array of torments and executions, to the subtler and nasty modifications brought on by Fleshwarping, up to the really disturbing, Orwellian (or even Huxleyan) mind control.