John Proctor shouts out this accusation in a fit of rage when Ezekiel Cheever and Marshall Herrick come to arrest his wife, Elizabeth, on a charge of witchcraft. Elizabeth had been accused by their former servant, Abigail Williams, whom Elizabeth had previously dismissed from service. Abigail and John Proctor had been involved in an affair and Elizabeth suspected the relationship.
Proctor remarks that "vengeance is walking Salem" and that "common vengeance writes the law". He is clearly stating that there is no prima facie evidence of witchcraft, but that certain individuals are using the accusation out of spite or to take revenge against others. This is true about Abigail's accusation against Elizabeth since she has previously told John that his wife had been spreading malicious and vindictive lies about her in the town.
Abigail is clearly bitter and resentful about her dismissal and John's ensuing rejection, and seeks revenge. She had intentionally injured herself with a needle claiming that Elizabeth had sent her spirit to harm her. When a poppet brought home by Mary Warren with a needle stuck into it, is found in the Proctor's home, the sheriff and his deputy are convinced that this is ample proof of witchcraft. John refuses to let her go and tears up the warrant but later relents when Elizabeth agrees to comply.
Mary Warren had informed the Proctors that thirty nine others been arrested thus far. These included individuals such as Sarah Good and Goody Osburn. Both women were vagrants and seen as a nuisance in the town, so charging them with witchcraft was a convenient way of getting rid of them.
Others, such as Rebecca Nurse and Martha Corey, were arrested because their families had consistently been involved in land and property disputes, specifically with the Putnams. Mrs Putnam had accused Rebecca of bewitching her so that her babies may not live beyond their birth. Martha Corey had been accused for bewitching Mr Walcott, this after she had been involved in a dispute about a pig that he had sold her.
It is clear, therefore, that those who had issues to settle used accusations of witchcraft and abuse the law to appease their desire for revenge. This is why John makes the accusation.
Proctor remarks that 'vengeance is walking Salem'. By this he means that there is nothing supernatural going on, and that there are no witches; instead, people in the community are simply exploiting the current atmosphere of fear and taking the opportunity to accuse anyone whom they have a grudge against. This gives the accusers the chance to pursue private conflicts and get their back on people they don't like. For instance, Abigail takes the chance to implicate Elizabeth Proctor, her rival for Proctor's affections, and it is strongly implied that Thomas Putnam gets his daughter to accuse those whose land he would like to take.