Peacemaking is a defensive bard skill used to stop combat in the nearby area. Creatures will re-engage after a short period of time.
This is a musical skill. Use the skill, then click on your musical instrument (or the game will remember the last instrument you played). Target yourself for an AoE effect. Target an individual creature to apply the effect to that creature only. An AoE peace will not last very long at all, whereas a single-target peace behaves similar to a stun that lasts very long. Depending on your skill level and the creature, a successful peace can "stun" a target long enough to be killed by spells (weapons?). Peace can be re-applied to a creature when it has worn off (diminishing returns?).
Player vs Player
Peacemaking effects other players, however, it does nothing to stop them from re-attacking you. This makes it a largely useless PvP skill, but can save you if you use it just before you are about to be hit. Your enemy will need to re-attack you before they will land their auto-attack.