In March 1938 Germany had annexed Austria, the Anschluss. It was widely known that Czechoslovakia's Sudetenland with its substantial German population would be Hitler's next demand. France and the Soviet Union both had alliances with the Czechoslovaks, but both were unprepared for war. None of the powers in western Europe wanted war. They severely overestimated Adolf Hitler's military ability at the time, and while Britain and France had superior forces to the Germans they felt they had fallen behind, and both were undergoing massive military rearmament to catch up. Hitler, on the other hand, was in just the opposite position. He far exaggerated German power at the time and was desperately hoping for a war with the west which he thought he could easily win. He was pushed into holding the conference, however, by Benito Mussolini who was totally unprepared for a Europe-wide conflict, and was also concerned about the growth of German power. The German military leadership also knew the state of their armed forces and did all they could to avoid war.
In the lead up to the conference the great powers of Europe mobilised their forces for the first time since World War I. Many thought war was inevitable and that a peace that would satisfy everyone would be impossible.
A deal was reached, however, and on September 29, Adolf Hitler, Neville Chamberlain, Edouard Daladier and Benito Mussolini signed the Munich Agreement. The settlement gave Germany the Sudentenland starting on October 10, and de facto control over the rest of Czechoslovakia as long as Hitler promised to go no further.
Chamberlain received an ecstatic reception upon his return to Britain. At Heston airport he made the now infamous "peace in our time" speech and waved the agreement to a delighted crowd. Though the British and French were pleased, as were the German military and diplomatic leadership, Hitler was furious. He felt like he had been forced into acting like a bourgeois politician by his diplomats and generals.
Joseph Stalin was also very upset by the results of the Munich conference. The Soviets had been represented at the conference and felt they should be acknowledged as a major power. The British and French, however, mostly used the Soviets as a threat to dangle over the Germans. Stalin was also distressed by the readiness of the west to hand over an ally to the Nazis, causing concern that they might do the same to him in the future and influencing his decision to switch his allegance from an anti-fascist alliance with the British and French to signing the Molotov-Ribbentrop Pact in 1939, allying the Soviet Union with Nazi Germany.
The Czechs were also less than delighted with the settlement. With Sudetenland gone to Germany and later a small portion of Silesia given to Poland, Czechoslovakia lost its border defenses with Germany and without them its independence became more nominal than real. In March 1939 any hope that Chamberlain's words would be true came to an end as the Nazis proceeded to occupy the remainder of Bohemia and Moravia, while the eastern half of the country, Slovakia, became an independent state, dominated by Germany. Though no immediate action followed, Hitler's next move on Poland made war inevitable and World War II commenced.
For further details see: Czechoslovakia: 1938 - 1939