What is Happiness?
Happiness is a function of the tax rate, population size and the level of the city's Coliseum.
Taxes: The more taxed the population, the less happy it is (as in life). If you raise or lower your taxes to increase your gold resource, it will affect your Happiness.
Coliseum: The Coliseum is where your population goes to "enjoy" themselves so it increases happiness. The higher the level of your Coliseum, the happier your population is.
Population: The "happier" your population is, the higher their occupancy rate in your Villas, which means a greater idle population for building troops or your labor force.