Energy is a one of the two motives medieval Hero's have. It indicates their need for rest.

Throughout the day, a Hero's Energy will fall at a steady rate until they begin to get Sleepy. Heroes

Monarch Sleeping

A Monarch sleeping in a bed.

who continue to not rest will eventually become Tired (-30 Focus). Eventually, a Hero who hasn't rested will become Exhausted (-50 Focus) and start to randomly pass out.

Heroes mostly rest by napping and sleeping in beds, but they can also sleep in the forest or at inn in the village. However, wizards only need to meditate, allowing them to regain their Energy anywhere and at anytime. Some wizards may prefer a bed, as it grants them the "Well Rested" buff. Instead of "sleep" Evil Sims get the "Evil Slumber" interaction, which appears to be no different.

Priests and wizards can spend some of their Energy to cast spells and use miraculous powers.

Energy can also be instantly restored by drinking either the Crafthole Energy Potion or the more powerful Energy Potion.