How do I sell ships I have captured in friendly ports? The manual says I have the ability to do this but I don't see the option for it anywhere in the game.

As far as I know, you can only sell your ships to principalities. The only things you can sell to the ports that you own, are cargo, crew, cannons and cannonballs.

Question still remains, how do I sell ships?

Select a ship for sale, then sail to any principality. When your ship arrives, select the ship button on the right side of the screen. Sale button on the top-right should be already selected. Click on the treasure chest button to sell the ship.

before selling the ship at any principality remove the funds of it and then sell it . you can sell with cargo in it as it will add to the value of the ship . But if you don't remove the funds , you'll lose them