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A blockhead's happiness bar shows the speed of a blockhead. It is calculated according to hunger, environment, energy, and health bars. When its happiness bar lowers so does the speed of the blockhead. By keeping its happiness bar at maximum a blockhead will be able to travel faster, craft quicker, and mine faster.
Unless a blockhead is wearing the sunset skirt of happiness, a blockhead's happiness bar will not be higher than its health bar, so if all bars are at maximum except happiness, it might be a good idea to check to see if the health bar was overlooked.
In addition to showing a blockhead's happiness bar, its status window displays text with a general description of its happiness or energy level (marked as 6 on the graphic to the right) with messages such as "Very happy!" or "Happy." Sleeping, eating, and moving to bright or enclosed area can bring up a blockhead's happiness.