Hi,
I wanted to address your question, regarding the dialogue first.
Basically
1. The Guy was Arrogant. He doesn't even take his helmet off, when addressing Godfrey.
2. Being left alive meant, his life was worth more to them, than God, Godfrey's men or son.
The most logical reason(s)
3. They didn't have time, to send an emissary, all the way to some Duke, while in the middle of a pretext to Jerusalem.
4. Don't F**K with Liam Neeson, and his kids. Enough said.
5. Ridley Scott plays with this concept of Eye for and Eye, in his earlier work (Gladiator).
In-depth Information
The movie takes place during the Crusades, and in that time, the act of holding a person hostage or
"Ransom" had deep, financial and religious connotations to its meaning. The etymology behind the word serves, as a significant purpose, behind the laws of, Man, the New and Old Testament.
The derivatives in the Old Testament, mean, "protection, or to cover". This may preside, within the plot device of the film itself, for it begs to ask; Who is worthy of living or surviving the skirmish? As in the evils of men, shall be extorted by the justifiable laws of the good. Well who is good and who is evil?
If we are referring to the notion that, "all men are sinners" (as in the New Testament), therefore, all are equal, despite affiliations to royalty or nobility. Than the life of another or [say this] "Guy", is worth taking place of Godfrey's, slain men.
In stark contrast to its origins, the word is much more detailed and expressive, within the New Testament, where as its face-value contributes, "to a significant price, or something redeemable". Ultimately, it is to terminate a fine, through means of payment, within equivalency. In this case, a life for a life.
Since this movie revolves around the idea of reconciliation, within the context of Christianity, and its early foundations. It is clear, that asking to be held captive, is like saying, "my life was worth more, than those who died". In arrogantly doing so, he gets a pick-axe to the back of his head, in spite of his nobility. David Thewlis (resident bad ass), is only obliging him.
Answer
A. This scene makes claim, that no man can hold another hostage, because it implies, that his life is worthy that of Godliness. No man or woman, is expendable.
B. He doesn't necessarily mean, "agreed", or "acknowledge", but more so, "I deserve the privilege of being captured."
C. Godfrey takes his words, in a different context, probably due to his callaber as a warrior, and his fights with Saladin.
D. By killing two of Godfrey's men, he needed to redeem the death, in place of another.
The Movie
I would suppose you have the directors-cut, because in the theatrical release, this scene is shortened a bit. In the movie he murders a priest, that happens to be his half-brother. This was mentioned, in order to tighten up the historical accuracy...
The movie plays with this "theory" of ransom. When they kidnap Saladin's sister, and the Muslims request to have the body back, for a proper burial.
Abridged Version of: The History of Ransom in the Middle Ages
It was a very popular custom, to do so in the Middle Ages, for financial and political reasons. It put a marginal value on clans, or families and some might say, that its processes, gave birth to coats of arms, or heraldic crests. These symbols often made distinctions among knights.
For example, at one time, Richard the 1st, was kidnapped, in order to extort funds from the throne. This ransom lead to necessary funds in building the cities, that would later become, South Vienna. Kings were Christened, by "God" as the heirs to the lands they controlled. If under that consideration, than that mans life, was a valued as Gods.
In relation to the film, it's a testament to Godfrey's caliber as a Knight, because he realizes that no man bears, such embellishments, or privileges.
Keep in Mind, that this is a loosely based story, done by the same guy, that did Gladiator. 
The Nobleman, Balian de Ilbelin, in historical terms never killed his own brother, Baldwin. Though there were disputes within the family. It was amongst who supported the right, successor to the throne. They had an elder brother, that died before his time. With that in mind, bear that Orlando Blooms character is almost a combination of the two.
Hope that Helps!
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