More green bars signify a very happy Sim; more red bars signify an extremely unhappy Sim. If they are extremely unhappy, they won't want to do anything, saying they lack the motivation, and they will most likely die. It can also have an effect on their interactions with other people.
For example, two unhappy Sims are more likely to fight, while two happy Sims are more willing to get along.
It will lower sometimes when the Sim is standing, but not as much as it would if they are sitting on an extremely uncomfortable piece of furniture, or working out.
This is usually the best option for large families, but if you have a single Sim that eats only one portion, then just click the 'Have Breakfast/Lunch/Dinner' option, unless they're starving. This isn't very filling, unless you eat the whole thing, but is good if your Sim often starts fires or is just plain lazy.
Also, you can satisfy your Hunger motive somewhat by ordering Pizza. Finally, when you do cook, and want maximum efficiency, make sure to follow this order of items.
To keep your Sim happy, all of these needs must be fulfilled. Hunger, Comfort, Hygiene, Bladder, Energy, Fun, Social, and Room.
Making your Sim use different items will have an effect on each need.