The は is the topic marker. It tells you what the sentence is talking about.
So この町は means something like:
Then the rest of the sentence says something about that topic:
So the structure is:
This is a very common question.
In this sentence, は presents この町 as the topic:
As for this town, it is peaceful.
If you used が instead, the nuance would change. が often marks the subject more directly and can sound more like identifying or emphasizing it.
Compare:
So は is the more natural choice for a simple neutral statement about a topic.
平和 is commonly treated as a na-adjective word in Japanese, and it can also behave noun-like in some situations.
Here, in 平和です, it works as the predicate of the sentence:
A useful thing to remember is:
So:
Because な is only used when a na-adjective comes before a noun.
So:
But in your sentence, 平和 is not modifying a noun. It is ending the statement as the description, so you say:
Not:
That would be ungrammatical.
です makes the sentence polite and works like a polite copula.
In a sentence like this, it is similar to is in English, though it does not match English perfectly in every situation.
So:
A less polite form would be:
That form is more plain and is not what beginners usually learn first.
No, normal Japanese writing usually does not use spaces like this.
A standard version would be:
この町は平和です。
Spaces are often added in beginner materials to make the sentence easier to read and to show where the parts are.
So the spaced version is a learning aid, not standard everyday writing.
Yes, Japanese very often omits things that are clear from context.
For example, if everyone already knows you are talking about this town, someone might simply say:
But Japanese can also state the topic clearly when needed, especially in textbook sentences. Here, この町は is included to make the topic explicit and easy to understand.
So this sentence is very natural, but Japanese would also allow omission if the context made it obvious.