Class warfare is a situation in which Equality has become so bad in a nation that mass protests and rioting has broken out between the poor and the rich. A high rate of Poverty can also contribute to sparking a class war.
Class warfare deeply upsets both the poor and wealthy, the capitalists, and the conservatives, especially as it greatly raises a nation's Violent Crime rate. Class warfare also increases the membership rate of the socialists, as more and more people begin demanding equality and an end to the war.
The easiest way of preventing or solving class warfare is to keep a nation's equality rate high. Less sympathetic leaders can take a more draconian approach by setting up CCTV Cameras, arming police, and enacting Curfews.
In Democracy 3 it is scripted that it is less likely for this situation to occur in America.