Technically, Volcanoes are Features which exist on top of Peaks. The volcano event places the feature, but does not remove the Peak. (Edit: actually, I'm thinking it does remove the Peak, but since they are handled in the game engine it doesn't do it the conventional way)
From the xml, it appears that Volcanoes add +1 visibility and require 2 movement instead of 1 like peaks do. Of course, this only matters to units that can move impassible.
It doesn't appear that volcanoes actually do anything, but it purely cosmetic. (Edit: ok, there is also a random event that makes volcanoes destroy nearby improvements, but that's about it.)
Of course, it wouldn't be too hard to some more interesting functions. For starters, it is very easy to make it require Fire Resistance to move there (even with units that can move impassible) or to make it change health. I also just noticed that BtS added the ability to make the feature itself deal damage to all units on it. (Too bad this isn't in typed damaged; I may look into changing that. I'm also going to try to include several of feature, terrain, or improvement tags in all 3 file schema, but that is probably above my skills. I'm too busy to try this month.) You could also change the single volcano to several different versions and make one upgrade to another, perhaps cyclically. (Too bad you can't set the feature upgrade rate separately. It would just be the same rate as Forests turning into Ancient Forests, so I couldn't make the dormant phase last longer.) Thus, a dormant volcano could provide extra food and commerce (very fertile volcanic soil), while a more active one (in addition to possibly triggering devastating events) could cause enough unhealthiness to drop any (non-fallow trait leader's) city down to size 1.
I'm going to come up with some interesting volcano effects for my modmod. I'm also adding a Earth/Fire cross-sphere spell that lets players create their own volcanoes wherever they want. (Don't expect the caster to survive the eruption.)