Formation of functionally adequate vascular networks by angiogenesis presents a problem in biological patterning. Generated without predetermined spatial patterns, networks must develop hierarchical tree-like structures for efficient convective transport over large distances, combined with dense space-filling meshes for short diffusion distances to every point in the tissue. Moreover, networks must be capable of restructuring in response to changing functional demands without interruption of blood flow. Here, theoretical simulations based on experimental data are used to demonstrate that this patterning problem can be solved through over-abundant stochastic generation of vessels in response to a growth factor generated in hypoxic tissue regions, in parallel with refinement by structural adaptation and pruning. Essential biological mechanisms for generation of adequate and efficient vascular patterns are identified and impairments in vascular properties resulting from defects in these mechanisms are predicted. The results provide a framework for understanding vascular network formation in normal or pathological conditions. With regard to tumor microcirculation, the simulations indicate possible factors leading to characteristic features including poor tissue oxygenation in the presence of adequate overall perfusion, and persistent instability of vessel structure and flow patterns.