Gunn has talked about this before, and I've tried to relay/explain as much as I can, but the gist is basically this...
Season two of Peacemaker takes places exclusively in the new DCU.
That said, a lot but not all of the events of season one, that took place in the DCEU, also took place in the DCU iteration. So, in other words, the broad strokes of season one will be backstory for these "new" versions of the same characters. However, things like the Justice League appearing at the end of season one, and other instances that are highly specific to the DCEU, didn't happen in these characters' history, if that makes sense.
I agree that it will likely be confusing, is not ideal, and that Gunn probably should have killed his baby, so to speak, in favor of a completely fresh start. But season one was so popular and well-liked that they decided to keep the show going and retcon certain events instead.