You need to have the game patched - how did you install it? If V1.00 from disk I don't think it is available.

If on a later version, there is an options button at the bottom of the match setup screen (where you setup player races and AI etc...) - host can edit game speed, fleet size, locked/unlocked teams and of course PIRATES!!!

Chances are:

1] your game is not patched. This option came with a patch.

2] the map you're trying to play has no pirates. (though I don't know if it affects the presence of the button)

Obviously it should show up in "game options" - this button is present at the screen where you select the map and/or your race.