One of the themes of the play is that Othello struggles to find his purpose when the war itself is taken away from him by the destruction of the Turkish fleet. So too is this town now filled with soldiers without an enemy and since it is a town of war, a war it must have. So as Iago schemes and builds on that tension and brings it to a boiling point with alcohol and some well-placed insults, etc.
Othello strongly condemns the fight, particularly because it is in this town of war which is filled with the fear of enemy soldiers and is likely to overreact at any kind of fight or conflict within its walls. Since the "town of war is Yet wild, the people's hearts brimful of fear," how can they be expected to manage this conflict within its own army and between its own soldiers instead of dealing with an outside invasion, the one they expected but will now never materialize.