In this chapter, Julia and Winston discuss the reasons why the Party wants to make people stop having sex.
Julia believes that the reason for this is that the party wants people to have pent-up, unreleased sexual tension that will cause them to become hysterical. She says that the Party could then take this hysteria and redirect it so that people put all that energy into loving Big Brother and hating the enemies of Oceania.
Julia says that people who are engaged in a sexual relationship will be too happy. They will not want to bring themselves to the fever pitch of hatred needed for the Two Minute Hate, for example.
So, sex is bad, in the eyes of the Party (Julia says) because it makes people happy. The Party wants them frustrated so that they will be more able to hate. The Party wants them to have no one to love so they will love only Big Brother.
Winston thinks, earlier in the novel, that:
The Party was trying to kill the sex instinct, or, if it could not be killed, then to distort it and dirty it. He did not know why this was so, but it seemed natural that it should be so.
Later, he thinks:
The sexual act, successfully performed, was rebellion. Desire was thoughtcrime.
Julia, who, according to Winston, relates everything back to her own sexuality, penetrates to the heart of the Party's hatred of sex in a specific way that Winston doesn't. In other words, he recognizes that her insights are more acute that his own. As the above quotes show, he knows the Party wants to destroy the sexual instinct and he knows too that, in the Party's mind, desire, including, sexual desire, is a thoughtcrime, but his insights don't go much deeper than that recognition. Julia, however, has a pragmatic grasp of the Party's thinking: While the Party does resent anything that diverts attention from it and is outside of its control, she realizes that the Party also wants to harness sexual energy to its own agenda. It doesn't want anything that could be used for it to go to waste:
’When you make love you’re using up energy; and afterwards you feel happy and don’t give a damn for anything. They can’t bear you to feel like that. They want you to be bursting with energy all the time. All this marching up and down and cheering and waving flags is simply sex gone sour. If you’re happy inside yourself, why should you get excited about Big Brother and the Three-Year Plans and the Two Minutes Hate and all the rest of their bloody rot?’
Julia understands that people who are sexually satisfied aren't going to possess maximum pent-up energy to offer to the state. What she partially misses, but will become crystal clear after she and Winston are arrested, is that aside from any practical value in suppressing people's sexual energy and diverting it to nationalism, the members of the ruling elite want people to be unhappy because that is the only way they know they are exerting maximum power over the populace: the elite can only be sure people are doing with the Party wants, and not what they as little people want, if the little people are miserable.