Happiness – according to Aristotle: "is activity of the rational soul in accordance with virtue"

Aristotle's approach to ethics is teleological. If life is to be worth living, he argues, it must surely be for the sake of something that is an end in itself—i.e., desirable for its own sake. If there is any single thing that is the highest human good, therefore, it must be desirable for its own sake, and all other goods must be desirable for the sake of it. One popular conception of the highest human good is pleasure—the pleasures of food, drink, and sex, combined with aesthetic and intellectual pleasures. Other people prefer a life of virtuous action in the political sphere. A third possible candidate for the highest human good is scientific or philosophical contemplation. Aristotle thus reduces the answers to the question “What is a good life?” to a short list of three: the philosophical life, the political life, and the voluptuary life. This triad provides the key to his ethical inquiry.

“Happiness,” the term that Aristotle uses to designate the highest human good, is the usual translation of the Greek eudaimonia. Although it is impossible to abandon the English term at this stage of history, it should be borne in mind that what Aristotle means by eudaimonia is something more like well-being or flourishing than any feeling of contentment. Aristotle argues, in fact, that happiness is activity of the rational soul in accordance with virtue. Human beings must have a function, because particular types of humans (e.g., sculptors) do, as do the parts and organs of individual human beings. This function must be unique to humans; thus, it cannot consist of growth and nourishment, for this is shared by plants, or the life of the senses, for this is shared by animals. It must therefore involve the peculiarly human faculty of reason. The highest human good is the same as good human functioning, and good human functioning is the same as the good exercise of the faculty of reason—that is to say, the activity of rational soul in accordance with virtue. There are two kinds of virtue: moral and intellectual. Moral virtues are exemplified by courage, temperance, and liberality; the key intellectual virtues are wisdom, which governs ethical behaviour, and understanding, which is expressed in scientific endeavour and contemplation. 

(Encyclopedia Britannica)