Though you can choose whether to be Prepared or Unprepared, the environment decides whether you are In-Combat or Out-of-Combat. By default you are Out-of- Combat during Unprepared State. Whenever you or one of your nearby Party Members performs a hostile action or aids another Player Character In-Combat, you will turn In-Combat and the outline of the Combat Indicator will turn red. While Out-of-Combat, you have access to all your Interface options again, your Health Points regenerate at a faster rate and you are once again allowed to Sit (X) to boost Health Point regeneration even more.