When you tap a villager a menu appears. At the bottom you can see a "use" button in blue.
Click on it and if you have a birthday cake or a mushroom grog, for exemple, you can give to him. But what is the effect ?
Mushroom grog : Gives 100 xp to the selected villager .
Birthday cake : You can change some clothes for your villager .
Love potion : Restore all the happiness to the selected villager .