Imagine a fortress, sealed off from the surface as a result of a siege. There isn't much food left, as several farmers were killed. Almost everyone is miserable, and a tantrum spiral could occur any minute. The solution? Propaganda. Make up some crazy story about how the dwarves in FarAwayville only get one plump helmet a year for food. Suddenly your dwarves are a lot happier, and are grateful for what little food they have.
Let's look at another situation. Say that as a result of war, you have a few elf prisoners locked up in little wooden cages. You could sure use some more soap for your hospital to treat wounded soldiers, but you'll need to burn some wood for ash. See where this is going? But before you can have your elf wood burners, you'll need to convince your dwarves that slavery is okay. How? Propaganda. Tell them some story about how elves buy kidnapped dwarves from the goblins and then force the poor kids to water every single tree in the forest, or risk getting sacrificed to the almighty woodpeckers. Suddenly, your dwarves will feel that it's only right that justice is served and the elves are forced to work.
Of course, there's always a chance that some over-educated dwarf will see through your lies and get angry, or potentially even go around and tell all his friends that your propaganda is all lies. There could be new crimes called "Attempting to Start an Uprising" or "Disloyalty" that could get those troublemakers put in jail, or given beatings.
Propaganda would be really cool to add to the game, because it could be a way to directly influence happiness, and even change your dwarf's ethics in some cases.
So what do you guys think?