If you’re discussing a sentence from seforim, it is best to do so in context. So here are some selections from Rebbe Nachman’s teachings on joy, including the famous sentence that’s the subject of this thread. This is just a small sampling.
“It is a great mitzva to be happy at all times. Be determined to keep away from depression and aim to be happy constantly. Happiness is the remedy for all kinds of diseases because many illnesses are caused by depression. You must be resourceful in order to make yourself happy. Often you must do something a little bit crazy in order to make yourself happy.”
“When a person is depressed, his intellect and his mind go into exile. This makes it very hard for him to concentrate his mind on teshuva, returning to God. The main reason why people are far from God is that they do not stop to consider what the main purpose of their existence is. But when someone is happy his mind becomes settled and he is able to understand things clearly. Joy is freedom. When a person fills his mind with joy, his intellect becomes freed from its exile. He can control his mind and intellect however he wants so as to concentrate on his goal and return to God.”
“When someone is happy all day it is easier for him to spend an hour or so with a broken heart, talking to God and pouring out his heart like water before Him. After a broken heart comes joy. The test of whether your heart was really broken is if afterwards you feel joy.”
“You should constantly center your thoughts on contemplating the root of all things. This is the source of all that is good and all joys. You will feel an overwhelming joy, because when one contemplates this root which is wholly good then everything good and joyous is merged into one and radiates with abundant light.”
“Most important of all, you must be happy while you are praying. Be sure always to pray with joy. The same applies to carrying out the mitzvot. You should be especially joyous on Shabbat and Yom Tov. Even on weekdays it is a great mitzva to be happy always.”