This quote can be found in the first chapter of Mill's work Utilitarianism. In it, Mill is responding to critics of utilitarianism (and its antecedent Epicureanism) who dismiss this philosophy as the mindless pursuit of pleasure. It is true that utilitarians advocate the pursuit of pleasure as the means to happiness, but Mill is careful to distinguish between different types of pleasure. To explain the quote in full, we should look at the phrase that follows it: "...better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig are of a different opinion, it is because they only know their side of the question." The point is that people are capable of "higher pleasures" than a pig, or a fool, for that matter. These are the pleasures of the intellect, of morality, and of cultural refinement. What is more, as Mill makes clear, a utilitarian does not advocate only the individual pursuit of these pleasures, but rather the arranging of society in such a way as to make it possible for everyone to pursue them. So Mill is drawing a distinction between base, animalistic pleasures that would not satisfy a person in any case and more sophisticated pleasures. In so doing, he is dismissing what he regards as a crude and shallow critique of utilitarianism as well as previous expressions of the philosophy (like that of Jeremy Bentham) that he saw as separated from morality.

This saying comes from John Stuart Mill.   In it, he is trying to explain what it really means to be happy.  He is responding to the idea that a pig is happier than a person or that a fool is happier than a philosopher because “ignorance is bliss.” 

According to Mill, there is a difference between being contented and being truly happy.  A fool (or even a pig) can be content.  Pigs and fools do not have or do not use their higher faculties.  Therefore, they don’t think about things and are content so long as their immediate needs are taken care of.  To Mill, this is not true happiness.  To Mill, true happiness consists of using your higher faculties.  A truly happy person is one who understands the world through use of higher faculties such as reason.  People who think may be discontented at times because they understand how imperfect the world is.  However, they are capable of being truly happy because it is better to understand the world and still be happy than it is to be content because you are ignorant. 

People, and particularly people who think, are happier because they have a better understanding of the world and because they are operating on a higher level than pigs and people who do not think.  This is what Mill is contending in this quote.