The smaller the aperture in the rear sight the sharper the image of the front sight post can be for you. For peep sights I mean.
On my SIG 556R I use that aperture as my setting for the close up back up sight, not the v notch 100 yd. setting. While sighting in the iron sights I noticed how sharp the front sight post looked through that small hole vs. the blurry looking image while trying to use the 100 yd. V notch.
As for hunting, I never used a peep sight for hunting. It should work fine though. I used to shoot the thumbtacks out of my shooting buddy's 25 yd. pistol targets with my old M52B and it had target sights on it (peep on the rear with a funny looking front side that used different inserts). Thumbtack is quite a bit smaller than a squirrel or rabbits head.
On the other hand, neither my grandpa (WW1 veteran who carried an M1917 through France/Germany) nor my dad (Air Force through the early 50's to the mid 70's) like peep sights at all. Their squirrel guns had the standard front sight blade and V notch in the rear sight. They were big fans of head shots so they didn't mess up any meat.
Going back to the peep sights, if the sight can use them there's a guy who makes/sells lenses that fit into a peep sight (I've only used them in M1/M1A match sights) that can compensate for aging eyes. Makes that front sight post stand out clear and clean like you were 20 again (if you had good eyes at 20, I mean).
B. Jones Sights. Don't know if the peep sights available for the CZ rifles could benefit from those sight inserts or not.
http://www.bjonessights.com/index.html