It comes from the card game cribbage, where the score is kept on a wooden peg board, because scoring occurs during hands. When the scores were tied, the pegs were at the same level. Cribbage boards were also used to record scores in games such as darts, in the days before the widespread use of cheap chalk blackboards.
Although still common in Great Britain, the term is seldom used in the US, where the words “tied” or “equal” are very much more common.
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Taking him down a peg (unsupported origin)
In olden times men would have drinking competitions using wooden tankards with holes drilled down the handle into which could be inserted pegs to mark the level of the brew inside. If you were beating your competitor, you would have “taken him down a peg or two” if you were neck and neck you would be “at level pegging.”
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