Cupcakes are one of the three things that inspire your Sims; the other two being cocktails and a Rainbow Cake Slice.
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General Edit

By tapping the happy Sim next to the status bars you can use cupcakes. You can only get one when your sim isn't "inspired". It's next to your sim's needs bar, where your goal is displayed. If your sim is already inspired the cupcake will be white and you can't use it. Your sim won't be inspired when their needs are low (when the bars are red or brown), then the cupcake should be green and you can click it to get one. However, it costs 5 Lifestyle Points to use.

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