The needs relate directly to the mood bar. If your Sim is hungry or tired (or anything else negative), the mood bar will go down. So, it's important to watch both the mood bar and the needs bars. If you only watch the mood bar, you may end up neglecting your Sims needs and it will all go down hill. Mood is also affected by the moodlets your Sim receives. Things like decoration, first kiss, having a baby, etc. will bring positive moodlets that also raise the mood bar.