It sounds more like you're suggesting how the difficulty levels should work, rather than asking how they actually work!

Part of the fun of playing LDW's real time games is discovering what works and what doesn't. It can take several tries to determine the best approach. I don't know of many people who were successful the first time they played any of them. In Village Sim, however, you are warned by the tutorial that the food supply from the berry bush is limited and that research is important. It's a good thing that the plants, fish, pets and people in these games are just cute little arrangements of pixels!

In general, the difficulty levels determine how easily and quickly the villagers are able to be productive at their tasks (food, research and construction projects). The starting position is also less favorable as the game difficulty increases (initial food supply and number of villagers). It's a lot easier to succeed on the easy difficulty setting, although you're not totally protected from disaster. I really don't want to divulge exactly how the game responds to different settings and strategies, since that would remove part of the fun of these games - discovering what works and what doesn't.