The characters combine literally as “peace fruit.” This name was specifically created to link the fruit (果) to the concept of peace (平安) due to the pun with 苹果 (píngguǒ).
The 平安果 (píng'ān guǒ) tradition is a fascinating example of how a Western holiday is adapted with unique Chinese characteristics. It is not an ancient tradition but a relatively recent phenomenon that emerged in the 2000s, driven by youth culture and commercialization. The entire tradition hinges on a linguistic pun, or 谐音 (xiéyīn), which is a common and beloved element in Chinese culture used for everything from New Year's blessings (e.g., eating fish, 鱼 (yú), because it sounds like “surplus,” 余 (yú)) to wedding gifts.
This practice is largely secular. While it's tied to Christmas Eve (平安夜), most people who exchange Peace Apples do so as a fun, cultural gesture to show they care for their friends, family, or partner, rather than for any religious reason.
The 平安果 (píng'ān guǒ) is most prevalent in the weeks leading up to Christmas Day.