There are six kinds of state: Peace, Guild, Free, Capture, JiangHu and Team Mode. Click the corresponding button; you can switch between seven modes.
Peace: You can only slay monsters. You can't kill other players at all.
Guild: Slay monsters, the players in your enemy guilds, and cross-server players.
Free (PK): Slay monsters, team mates, guild members and other fellow players indiscriminately.
Capture: You slay monsters as normal, but you can also attack known criminals (murderer players with red or black names), as well as cross-server players.
Jiang Hu: You can slay monsters, black/blue named criminals, cross-server players, and other players who are also in Jiang Hu mode. This PK mode will be available when you reach 2nd reborn.
Team: Slay monsters and other players (including cross-server players), but not your team mates or guild members.