As one of those people that Cat said care about this sort of thing, Historical Accuracy discussions are near and dear to my heart.
The arguments between 1680 and 1690 could go on for months, however, for brevity's sake I think I can focus on political right now. First of all, you need to remember that the biggest year for the second half of the 17th century, perhaps even the early 18th as well, has to be 1688 - and not because Morgan died.
Because of the Glorious Revolution of 1688, that date is the date prescribed to the beginning of modern England. Parliament has kicked out Charles and brought in William of Orange - A Dutch Prince - as king. William has been long embroiled in a war against the French Louis XIV. William sees it as his mission from God to rid the world of the Catholic tyranny, while Louis equally sees it as his to defend Christianity and the `Pseudo-Catholic` empire from heretical protestantism. So the English Parliament decides to offer the crown to William. William gets more resources to fight his war against the French (something the Brits are traditionally good at) and Parliament gets a new King who won't stomp on their property rights. Its a win win (Incidentally, if you are paying attention you should notice that `Jolly-old` England and Holland should not be at War in the game then... but oh well. If you want a period where Great Britain goes up against France, Holland, and Spain you need to look forward a hundred years to the Napoleonic Period).
1688 also saw the modernization of the Royal Navy. `Pre-1688` the ranks we are all familiar with didn't exist. It went something like this:
Admyrall
Master -/- Captain
Lieutenant
Ranks were less commissions and more of a system of `self-imposed` hierarchy. The Admyrall (`early-modern` spelling) commanded the fleet. The Master commanded the ship and sailors. The Captain commanded the military men `on-board` the ship (think Marine captain). The Lieutenant was the Master's assistant in running the ship.
After 1688, when all of England was modernizing, the RN did so too:
Admiral
Vice Admiral
Post Captain (Commodore)
Captain
Master and Commander
Lieutenant
Midshipman / Master's Mates
The big change was the combination of the Master and Captain's roles into the Master and Commander (abbreviated to just Commander, but refferred to as Captain if in command of a ship). Functionally, a Commander was a Lieutenant in command of a ship. If he lost his command, he went back to being a lieutenant - just like a commodore, goes back to captain once the squadron breaks up.
--Regarding your statement that England didn't sign any Letter's of Marque after 1688... that only somewhat true. Privateering was very much legal. In 1692 (I believe) William Kidd received a Letter of Marque to hunt the French in the Caribbean. Likewise, in 1700, he had one to scour the Indian Ocean for Pirates and the French.
Cat said that there were constraints due to ship and rigging types with the dates. That is 100% true. There was never a time when Galeons and Caravels were together with Brigs, Schooners and Corvettes. Without much thinking, you can break the rigging types into two periods and this is where the game's ships would probably fit in:
1st Generation:
Galeons, Caravels, Barques, Tartanas, Sloops, Xebecs and `Men-of`-War.
2nd Generation:
Pinnaces (which really isn't a pinnace, but that's a topic for another thread), Brigs, Schooners, Corvettes, Frigates, `Ships-of`-`the-Line`.
Xebecs, Tartanas, Barques, Sloops, Galeoths were pretty constant throughout the centuries.
I haven't played the game for months, so forgive me if I left some things out.
*Note* The Lineship in game is certainly not a lineship. A Lineship, but definition is any ship capable of fighting from the line (i.e. something with more than 44 guns). Frigates were signal ships maneuvering around the line sort of like fighters around an `air-craft` carrier. The Lineship and Warship - as they are Based on the Black Pearl model are really what during the 17th century would have nominally been referred to as `Men-of`-War. By the 18th Century they would have been obsolete, too slow, wrong hull type etc... The `Man-of`-War in game, a `triple-decker` with 100 guns, is really a 1st rate Line Ship. Therefore, the game is missing a lot of ships between frigate and the 1st rate.
A `Man-of`-War is not a type of rigging, but rather a greater classification of ships all together: a naval fighting ship is a `man-of`-war. Think of it as a counterpoint to a merchantman.
So much for brevity.
Basically, there is not proper time for PotC, so the best place is somewhere in the middle. The date really doesn't matter. When I play I just pick a time in history and `role-play` the period.