Merriment can refer to fun activities or a feeling of happiness. Either way, a good time is being had.
You know how merry means happy? Merriment refers to events and feelings that are happy. A party is a perfect example of merriment. If you hear a bunch of people laughing and joking, you might say, "Why all the merriment?" Merriment can also be an emotion: if you're very excited or happy, you're experiencing merriment.