This is a musical skill. Use the skill, then click on your musical instrument (or the game will remember the last instrument you played). If you are successful, all fights in the immediate area will stop, at least for a moment.
Raising Peacemaking: Peacemaking is an Activated Skill on the standard 10 second cooldown. Peacemaking is not difficulty based skill. Repeatedly use Peacemaking until you reach 100 skill.
Gideon's Advice: Peacemaking is an excellent beginning skill. If I were to start out fresh on UOR I'd likely make a fighter character with 100 Peacemaking and Musicianship. This allows you to easily kill NPC monsters (especially caster monsters like liches) and you can eventually drop the skills later.