A govt resource defines the parameters for a government, which is in turn defined as "any collection of ships and planets that react collectively to the actions of the player and other ships." Governments keep track of how they feel toward you, and they can also have set enemies and allies. The govt resource's fields are:
Unused Field A placeholder (ignored)
Flags Sets a variety of characteristics (see below)
Ally The ID number of the govt's ally.
Enemy The ID number of govt's enemy.
CrimeTol The maximum amount of evilness the player can accumulate before warships of this govt start to beat on him.
SmugPenalty The amount of evilness a player gains for being detected smuggling illegal cargo (defined in a misn resource) past this government's ships.
DisabPenalty The amount of evilness for disabling one of this govt's ships.
BoardPenalty Evilness from pirating one of this govt's ships
KillPenalty Evilness from killing this govt's ships
ShootPenalty Evilness from shooting one of this govt's ships (currently ignored)
InitialRec The player's initial legal record in systems controlled by this govt (0 is neutral, positive is good, negative is bad)
The different bits that can be set in a govt's Flags field are:
0x0001 Xenophobic (Warships of this govt attack everyone except their allies. Useful for making pirates and other nasty dudes.)
0x0002 Ships of this govt will attack the player in non-allied systems if he's a criminal there (useful for making one govt care only about the player's actions on its home turf, while another is nosy and enforces its own laws everywhere it goes)
0x0004 Always attacks player
0x0008 Never attacks player
0x0010 Warships of this govt will retreat when their shields drop below 25% - otherwise they fight to the death
0x0020 Ignore ships of this govt in the DoGoodSamaritan function
0x0100 'pers' ships of this govt won't use escape pod, but will act as if they did
0x0200 Warships will take bribes.
0x0400 Can't hail ships of this govt
0x0800 Ships of this govt start out disabled (derelicts)
0x1000 Warships will plunder non-mission, non-player enemies before destroying them
0x2000 Freighters will take bribes.
0x4000 Planets of this govt will take bribes
0x8000 Ships of this govt taking bribes will demand a larger percentage of your cash supply, and their planets will always take bribes (useful for pirates)
Doing evil deeds to one government will improve your rating with its enemies, and vice versa. Allied governments also communicate your actions, so attacking one government will make its allies hate you too.
One important thing to note is that two governments don't both have to have the other defined as their ally to have them be friendly toward one another. As an example: John says "I like Cajun," and Cajun says "John? Who's that?" Cajun and John are automatically allies, because Cajun's love for John is implied in John's statement of undying devotion to Cajun. :) This way, governments can have multiple allies. Enemies work in a similar fashion, except that any government not allied with a xenophobic government is automatically considered its enemy.