In madinah there were two tribes, the aws and the khazraj, the aws were small and khazraj were big. They had a lot of fighting, the khazraj took an oath that they will take double the retribution for whoever is killed, for every free then they will kill 2 free etc. so Allah revealed this ayah.
But if one is forgiving, then they should be recompensed in a good way, i.e. blood money.
The one who has been forgiven from his Muslim brother, the scholars point out that this isnt an act of kufr, he is still a Muslim brother.
If a person after agreeing the blood money transgresses then for him is a great punishment.