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What happens if Axis does not accept vichy event?does France just keep changing capitals?

If I understand your question correctly. If one does not accept French surrender when it is offered then one has to capture all production and moral related city hexes in France. When that is done France is conquered and Vichy France is not created; French colonies are controlled by the conquering country.

If you don't accept terms you just keep going till all of mainland France is conquered. Then they auto surrender but all colonies go Allied and all naval groups go to the UK.

I think the colonies go Axis.

Last time I conquered France I got all the colonies as the Axis, but the fleet came back in as British reinforcements.

I don't remember myself lots of rules. But sounds right. The UK should have troops in North Africa to quickly take Syria and Morocco to form a defensive line.