Various quantities and qualities have been measured by the use of pegs. It has been suggested that the pegs in question here were those used to regulate the amount of drink taken from a barrel, or those that controlled the hoisting of the colours of ships. However, the most logical sounding one to me is the pegs in a tankard.
This 18th century tankard had pegs and the idea was that you drank from one peg to another and then passed the tankard on. If you took more than your fair share you were taking your fellow drinker down a peg or two.
(The reason the tankard had a lid was to stop the press gang drugging your drink and carrying you off to sea.)
