The Peace/War Setting is an in-game option for players to choose whether to opt-out of wars or to potentially participate in them.
If you choose "Peaceful" as your option, other nations will be unable to declare war on you. You will not be able to declare war on other nations until you switch to "Wargoing". Nations that choose "Peaceful" suffer a penalty on their net surplus equivalent to their power; example: If you make $200,000 and you have a 10.46 power level, your surplus will by reduced by 10.46% (179,080).
If you choose "Wargoing" as your preference, other nations will be able to declare war on you and you will have the option to declare war on other nations. "Wargoing" nations get a 5% income bonus.
Changes to Peace/War Mode can only be made every 7 days and if you have paid your taxes and paid your bills.