Population measures the number of people living in your city. Each 2x2 house has a base population of 4. Attractions, Decorations, Natural Decorations, and Wonders will increase the population of nearby houses within a specific range by a fixed amount. In addition, houses near water will receive a waterfront bonus which is a percentage increase to the total populations. The maximum population for a single 2x2 house is 1600.
Higher population provides two main benefits to your city. First, several buildings are only available for purchase at a specific population level. Generally, buildings with higher payouts and benefits require higher population. Second, businesses gain a payout bonus percentage based on have many live in houses within three squares from the business. This bonus can reach up to 252% under ideal conditions. The payout bonus can dramatically improve the amount of Simoleons you collect from your businesses.