or:

to cause massive bloodshed

It means to start a blood feud but does not necessarily end up with murder. More like starting an argument or fight.

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Note added at 49 mins (2010-05-26 10:46:44 GMT)
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it is usually used by an angry person trying to threaten some one.
اگر فلان کار رو نکنی، خون راه میندازم.

it is also used by people trying to calm down the angry person. example:
بحث رو ادامه نده. خون راه می افته ها. (خون راه میندازی ها

please note that the expression is most used in conversations and is informal.

asker: <<The context - someone is cursing someone else and his wife tells him to stop for fear of khun raah andaakhtan as she says.
This is said to mean something like to start a blood feud so does raah andaakhtan mean something like 'start up>>

First of all, yes, راه انداختن means "to start up". The correct term, however, is not blood feud because:

A feud (referred to in more extreme cases as a blood feud or vendetta or faida) is a long-running argument or fight between parties—often, through association fallacy, groups of people, especially families or clans. Feuds begin because one party (correctly or incorrectly) perceives itself to have been attacked, insulted or wronged by another. Intense feelings of resentment trigger the initial revenge, which causes the other party to feel equally aggrieved and vengeful. The dispute is subsequently fueled by a long-running cycle of retaliatory violence...

The term خون راه افتادن and آتش به پا شدن both have the same meaning in this context the only difference being that the former is informal but the latter is slang. Ex: الان خون راه می افته ، الان خون به پا می شه، الان آتیش به پا می شه، الان جر می شه، الان دعوا بالا می گیره

In fact, although the term خون راه افتادن is used by the "wife", the only function the term plays is to warn that if the cursing is continued the verbal dispute will change into a physical one and the tension will grow. Someone will be beaten up but only scarcely implies that someone will be killed. And in case the husband of the wife is weaker than the rival, the wife's sentence can have an ironic and in fact comic sense as well, quite contrary to the surface meaning.

The recommended equivalent is then" to grow the tension"

Ex: They had beaten up my friend Shahram. I went to make peace between them, but the tension grew…

in the context here, these are typical English equivalents...
We would say something like "stop it before..."
all of the explanations about "rah endakhtan" and "khun rah endakhtan" more than cover the basic meanings