Further information, with much more detail, is available from Roger Dunkle's Core 1 Study Guide and in Thomas Martin's historical overview, available at the Perseus web site.
1. Where and when did Thucydides live?
The historian Thucydides was an Athenian who lived from about 460 to 400 BCE. It was during this period that Athens achieved the magnificence for which it has been famous ever since.
The Athenians had twice been instrumental in repelling a Persian invasion of Greece: once at the battle of Marathon (in Attica, the territory around Athens) in 490, and again at the naval battle off the nearby island of Salamis in 480.
During the decades after the Persian Wars the Athenians maintained and strengthened their navy. A defensive alliance, based on the island of Delos, became an Athenian empire, whose members--mostly island cities in the Aegean Sea--paid annual tribute to Athens.
In the second half of the fifth century the Athenians built, on the Acropolis (the citadel of the city) the monuments for which the city is still best known, including the Parthenon and the Erechtheion, both temples of Athena. The city was surrounded by a fortification wall, with a walled corridor to the Piraeus, the Athenian harbor.
During this time, also, the playwrights Aeschylus, Sophocles, and Euripides produced tragedies for Athenian audiences at the Theater of Dionysos just beneath the Acropolis; Aristophanes and others produced comedies.
Athens was a democracy, with an Assembly of all adult male citizens and a Council in which citizens chosen by lot served as representatives. The most important public officials were the ten military commanders (generals), who were elected annually.
2. What was the Peloponnesian War and why read about it?
The Peloponnesian War is the modern name for the conflict between Athens and Sparta (and the allies of each) which lasted from 431 to 404 BCE (with intervals of truce) and brought the end of Athens' naval empire and the temporary overthrow, on two occasions, of the Athenian democracy.
Thucydides says (1.1) that he began writing his history at the outset of the war, knowing that it would be a greater conflict than any that had gone before--even the Trojan War. He himself participated in the war as an Athenian commander and was sent into exile when he failed to rescue the outpost of Amphipolis, in northern Greece. Thucydides did not live to finish his history, which breaks off in 411 BCE.
Thucydides' history has two main interests for students of Core Studies 1:
3. What selections are we reading, and what should we be looking for?
Here is a map of Greece at the beginning of the Peloponnesian War.

Note that the city of Mytilene is on the island of Lesbos (also sometimes called Mytilene); the island and city of Corcyra, not labeled, is just off the coast in the NW (top left) part of the map.
4. How did Thucydides come to have such a different--essentially modern--view of history?
Herodotos (c480-c425 BCE), born in Halikarnassos in Asia Minor, wrote a history of the Persian Wars which survives as the first Greek historical work. Herodotos' narrative is wider-ranging and more inclusive of various kinds of stories than that of Thucydides, and allows, as Thucydides does not, for divine intervention in human affairs.
Perhaps the most important influence on Thucydides' outlook and methods was that of the sophists, the teachers who went to various cities and provided, for young men whose families could pay, training in techniques of argumentation and debate. Since this involved the ability to argue both sides of a question, some condemned the sophists as moral relativists who held no absolute values. (In reality the sophists--whose writings are almost all lost--seem to have had rather diverse views.)
The influence of the sophists, and reactions to them, will be very important in the next works we read, by the playwrights Sophocles, Euripides, and Aristophanes, and the philosopher Plato.
For more information on the sophists and their influence, see Thomas Martin's historical overview at the Perseus web site.
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