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Vaniver comments on Rationality Quotes December 2013 - Less Wrong
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Two interpretations jump to mind: the first is that 'fear' is interpreted as uncertainty, the second is that mutually fully informed agents could do enough damage to each other that war between them is senseless, and thus there are no battles.
Alternately, I interpreted it as saying that war between two such agents will always be a stalemate, with both sides gingerly risking pawns and trading minor victories which, while never leading to substantial success, do not lead to crushing defeat, either.
Of course, your second interpretation is much more applicable in the general case of two sides which are not evenly matched, in which case the weaker one will accept their defeat (either by surrendering or deciding to go out in a defiant but hopeless battle), in which case your first interpretation comes into play.