Acetylcholine (ACh) is a regulator of neural excitability and one of the neurochemical substrates of sleep. Amongst the cellular effects induced by cholinergic modulation are a reduction in spike-frequency adaptation (SFA) and a shift in the phase response curve (PRC). We demonstrate in a biophysical model how changes in neural excitability and network structure interact to create three distinct functional regimes: localized asynchronous, traveling asynchronous, and traveling synchronous. Our results qualitatively match those observed experimentally. Cortical activity during slow wave sleep (SWS) differs from that during REM sleep or waking states. During SWS there are traveling patterns of activity in the cortex; in other states stationary patterns occur. Our model is a network composed of Hodgkin-Huxley type neurons with a M-current regulated by ACh. Regulation of ACh level can account for dynamical changes between functional regimes. Reduction of the magnitude of this current recreates the reduction in SFA the shift from a type 2 to a type 1 PRC observed in the presence of ACh. When SFA is minimal (in waking or REM sleep state, high ACh) patterns of activity are localized and easily pinned by network inhomogeneities. When SFA is present (decreasing ACh), traveling waves of activity naturally arise. A further decrease in ACh leads to a high degree of synchrony within traveling waves. We also show that the level of ACh determines how sensitive network activity is to synaptic heterogeneity. These regimes may have a profound functional significance as stationary patterns may play a role in the proper encoding of external input as memory and traveling waves could lead to synaptic regularization, giving unique insights into the role and significance of ACh in determining patterns of cortical activity and functional differences arising from the patterns.