Creatures have a base max of 100 Happiness. This max can be improved upon by the addition of tiles (e.g. level 2 Den tiles in the case of Orcs, Warlocks and Ogres, other tile types for other creatures) or it can be improved upon by the addition of certain furniture (e.g. Fire Pit for Orcs, Warlocks and Ogres).
This Happiness can decrease over time if you lack the resources (Food, Gold, other required Resources) on Payday. If a creature's Happiness ever reaches 0 due to missing pay, that creature will go on strike and stop producing and won't accept any attack orders until its Happiness has recovered to 100.
The other way your creatures can lose Happiness is if you shock them. To do so you need at least the Forced Labor technology, and while it might look like it's not worth it, the bonus to production can add up over time and is fairly easy to do well (see Shocking Strategies).
If your creature is getting all of its requirements on payday, and its Happiness is below its maximum Happiness, then it will gain 5% (rounded down) of your maximum Happiness every payday until it reaches its max.
Creatures have a base 100% Efficiency. Once the Forced Labor technology has been researched, this Efficiency can be enhanced for a short term through the use of shocking. The maximum for the Efficiency is 200% in total.
Goblins can be shocked as much as you want without any negative effect but, other than the amusement of the Overlord, gains you no benefit either. Shocking Warlocks will increase their Research rate by the amount of Efficiency increase (so 125% Efficiency means they gain you an average 25% more research per hour. Creatures' combat damage is also enhanced by an increase in Efficiency (125% Efficiency equals 125% Damage).
If you shock a creature with Forced Labor, they will lose 10 Happiness and gain 5% Efficiency. If they have less than 10 Happiness, then nothing happens other than the Shock animation and sound. Once you have Merciless Labor, you can shock for a loss of 10 Happiness and a gain of 10% Efficiency.
All gains in Efficiency are temporary. At each payday, any creatures whose Efficiency is above 100% will lose 5% Efficiency or 1/4th rounded down of the Efficiency bonus. For example, a creature at 128% Efficiency is +28% so will lose 7%, while another creature at 127% is at +27% and will lose 6.75%, rounded down to 6% Efficiency loss... bringing both of them to 121% Efficiency. Once a creature is at 123% or less Efficiency, it will simply lose 5% every payday.