[quote=@Candelabra]
Hey, I'm considering playing a Nation RP for the first time. How much do I need to know about history to participate? I have an understanding of the general events of the period and geopolitical context, but not any ultra specific details for them outside of the UK as I read a book on the matter. 
[/quote]

In general, it's usually more important to understand the [i]motives[/i] and [i]circumstances[/i] of why things happened or why certain people acted they way that they did than it is just to know the series of events that transpired. It's because of that that the two seem a bit inseparable - you can't really know the motives without knowing what happened, but it's a distinction I feel like I have to often make between the two when delving into Nation RP and alternative history. 

For example, a liberal, reformist Austrian Empire-turned-Danubian Confederation that would have emerged from a revolution of the Iron Ring taking power in Vienna and then federalizing the Empire isn't that far-fetched: The Iron Ring was a very powerful force of liberalism in Austria during the time and they were involved in some of the largest protests and demonstrations that rocked Austria during the 1850s. They also didn't want like, total 100% independent freedom for everyone: The Iron Ring was very much still in favor of keeping the Empire all together and probably wouldn't have enjoyed the idea of a completely independent Hungary or Czechia. That's okay because it makes sense considering their actions, motivations, and size of their movement during the time - and the rocking waves of liberalism that was encountered throughout Europe too. 

Now, if you were to do something like have Metternich do a complete 180 and just implement sweeping reforms to make everyone in the Empire equal, it'd be frankly bullshit: Metternich was an arch-reactionary who was famous for burning down half of Italy because of a single revolt and hated liberals and liberal ideals with a burning passion, and he wasn't about to do a complete heel-face turn because he thought that it [i]might[/i] help stabilize the Empire: Especially not when it threatened his own status and ring of support to do so. 

[b]TL;DR[/b] Do some research on the big movements and figures in the country, then go from there. 

[quote=@Candelabra]
Right now, I'm considering picking up Luxembourg, maybe used by another nation as the groundwork to curb German influence and create a friendlier German state from the bordering Prussian holdings?
[/quote]

In all honesty, since the Junker class of Prussia was basically completely liquidized in addition to them not having places like Posen or Konigsberg/Królewiec/Kaliningrad would knock them a bit down the ranks a bite. Prussia would still be one of the most powerful states in Northern Germany - Silesia, Brandenburg, and the Rhineland were some of the most populous and industrialized places in Europe during the 1840s - but their political situation would have been fucked with some of their best leadership now broke and penniless. From a pure political standpoint, i'd wager that Hanover might have more political clout in Germany than Prussia does. 

Luxembourg in the sense of the German Confederation was more involved in the affairs of the Netherlands and would likely have more issues with the division between Walloonian and German speaking populations in Luxembourg than the inner machinations of the German Confederation - or the influence of Prussia, Hanover, or Austria in it, for that matter. 

Not saying your idea can't be done, but it's something to consider depending on what you want out of your RP experience.