Happiness is one of the variables of provinces of Age of Civilization 2.
Increases tax income: happy people are more likely to pay taxes.
When happiness is very low or 0 , civil wars and rebellions are likely to happen
Organizing a festival in a province will increase the happiness of that province. This can be done by Selecting a Province >> More >> Festival (in the Decrees Panel). This will cost money and movement points, the amount depending on the province. It lasts 7 turns, and happiness gradually increases happiness during that time.