If you have the game open, your little peeps think you want something from them or want to play with them. They will sleep best if you close the game and leave them undisturbed for 6-8 hours. You don't even have to put them to bed before closing, but of course you can if you like. If they are tired during the day and you want to play, naps actually increase energy levels more than going to bed. Meals and exercise (if they are not exhausted) will help also.

Things to raise happiness levels are: praising (green glove x2 for an action you want to encourage,) candy, fruit, buying them things and making sure they have enough food. Even giving them a bag of groceries improves happiness. Some enjoy gathering collectibles and that will raise happiness. A lot of socks, wrappers, weeds and dirt smudges will decrease happiness. If the depression is not due to a death in the family, you should make sure they are not sick and don't need an antibiotic.

More information in this post and this guide.